{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-determine-affiliation-for-businesses-operating-under-a-license-agreement","api_url":"https://dealroom.so/api/public/questions/how-does-the-sba-determine-affiliation-for-businesses-operating-under-a-license-agreement","question":"How does the SBA determine affiliation for businesses operating under a license agreement?","topic":"Affiliation & size","audience":"lender","bot_mode":"lender","short_answer":"Affiliation for businesses operating under a license agreement is determined if the licensor (or any third party) has the power to control the licensee, either through the terms of the agreement, common ownership, or common management.","rule":"SBA affiliation rules extend beyond simple majority ownership. Control can be found through contractual relationships, such as license agreements, if the terms grant the licensor significant influence over the licensee's operations, management, or critical business decisions. Lenders must review the license agreement thoroughly for clauses that indicate control, such as approval rights over management decisions, financial policies, or strategic direction.","example":"A borrower applies for a 7(a) loan to operate a business under a specific software license. The license agreement grants the licensor veto power over major capital expenditures, the right to appoint a board observer, and requires adherence to strict operational guidelines. The lender must assess if these provisions confer 'control' upon the licensor, potentially triggering affiliation for size standard purposes.","what_lenders_check":"Lenders must carefully scrutinize license agreements for control provisions. An incorrect affiliation determination based on a restrictive license agreement could lead to an ineligible loan and jeopardize the SBA guaranty.","required_facts":["License agreement terms","Control provisions","Common ownership","Common management","Strategic decisions","Veto power"],"source_families":["13 CFR Part 121 - Small Business Size Regulations","SOP 50 10 - Lender and Development Company Loan Programs","Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule"],"official_sources":[{"title":"13 CFR Part 121 - Small Business Size Regulations","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-121"},{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule","url":"https://www.federalregister.gov/documents/2023/04/10/2023-07173/affiliation-and-lending-criteria-for-the-sba-business-loan-programs"}],"related_questions":[{"question":"When does a contractual relationship between two businesses trigger affiliation for size standard calculations?","url":"https://dealroom.so/for-lenders/questions/when-does-a-contractual-relationship-between-two-businesses-trigger-affiliation-for-size-s"},{"question":"How does ownership of options or warrants affect affiliation determination for SBA size standards?","url":"https://dealroom.so/for-lenders/questions/how-does-ownership-of-options-or-warrants-affect-affiliation-determination-for-sba-size-st"},{"question":"What are the size standard requirements for a business applying for a 7(a) loan if it operates internationally?","url":"https://dealroom.so/for-lenders/questions/what-are-the-size-standard-requirements-for-a-business-applying-for-a-7-a-loan-if-it-opera"},{"question":"What specific scenarios involving shared directors, officers, or key employees constitute 'common management' triggering affiliation for SBA size determination?","url":"https://dealroom.so/for-lenders/questions/what-specific-scenarios-involving-shared-directors-officers-or-key-employees-constitute-co"},{"question":"Under what conditions does a shared economic interest trigger affiliation for SBA size standard purposes?","url":"https://dealroom.so/for-lenders/questions/under-what-conditions-does-a-shared-economic-interest-trigger-affiliation-for-sba-size-sta"},{"question":"How does the 'totality of the circumstances' rule apply when determining affiliation for SBA size standards?","url":"https://dealroom.so/for-lenders/questions/how-does-the-totality-of-the-circumstances-rule-apply-when-determining-affiliation-for-sba"}],"related_terms":[{"term":"Operating Agreement","url":"https://dealroom.so/glossary/operating-agreement"},{"term":"License","url":"https://dealroom.so/glossary/license"},{"term":"SBA size determination","url":"https://dealroom.so/glossary/sba-size-determination"},{"term":"SBA size standard","url":"https://dealroom.so/glossary/sba-size-standard"},{"term":"Business license","url":"https://dealroom.so/glossary/business-license"},{"term":"Under-Collateralized","url":"https://dealroom.so/glossary/under-collateralized"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-determine-affiliation-for-businesses-operating-under-a-license-agreement","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}