{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-due-diligence-is-required-to-assess-affiliation-when-a-borrower-owns-a-minority-stake","api_url":"https://dealroom.so/api/public/questions/what-due-diligence-is-required-to-assess-affiliation-when-a-borrower-owns-a-minority-stake","question":"What due diligence is required to assess affiliation when a borrower owns a minority stake in other businesses?","topic":"Affiliation & size","audience":"lender","bot_mode":"lender","short_answer":"When a borrower owns a minority stake in other businesses, the lender must review ownership agreements, operating agreements, and management structures to determine if 'negative control' or 'control through common management' exists, triggering affiliation.","rule":"Minority ownership (less than 50%) does not automatically preclude affiliation. The SBA considers 'negative control,' where a minority owner has the power to block significant actions, or 'common management,' where individuals manage multiple entities. Lenders must investigate if the borrower or its principals have such control mechanisms or shared management roles across these other entities, aggregating their size for eligibility.","example":"A borrower applying for a 7(a) loan owns 30% of another company. The lender obtains the operating agreement for that company and discovers the borrower's 30% stake includes veto power over asset sales and hiring/firing of key executives. This 'negative control' triggers affiliation, requiring the lender to combine the revenues/employees of both businesses for size eligibility.","what_lenders_check":"Lenders must look beyond simple majority ownership to identify potential affiliation. Missing 'negative control' or 'common management' scenarios can lead to an incorrect size determination and jeopardize the SBA guaranty.","required_facts":["Minority stake","Ownership agreements","Operating agreements","Negative control","Common management","Size aggregation"],"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":"Inadequate due diligence","url":"https://dealroom.so/glossary/inadequate-due-diligence"},{"term":"Minority Stake","url":"https://dealroom.so/glossary/minority-stake"},{"term":"Due diligence","url":"https://dealroom.so/glossary/due-diligence"},{"term":"Minority Equity Stake","url":"https://dealroom.so/glossary/minority-equity-stake"},{"term":"Operational due diligence","url":"https://dealroom.so/glossary/operational-due-diligence"},{"term":"Legal due diligence","url":"https://dealroom.so/glossary/legal-due-diligence"}],"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/what-due-diligence-is-required-to-assess-affiliation-when-a-borrower-owns-a-minority-stake","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."]}