What is the SBA alternative size standard?
Short answer
It is a second way to qualify as small for 7(a) and 504 loans. Including affiliates, tangible net worth cannot exceed $20 million. Average net income after federal taxes for the last two fiscal years cannot exceed $6.5 million (13 CFR § 121.301(b)(2)).
It lets a business qualify as small on net worth and income instead of industry receipts or employees. 13 CFR § 121.301(b) allows 7(a) and 504 applicants to meet either the industry standard or this one.
The two limits
Both apply, and both include affiliates:
- Tangible net worth of no more than $20 million.
- Average net income after federal income taxes of no more than $6.5 million for the two full fiscal years before application, excluding carry-over losses.
SOP 50 10 8.1, Sec. A, Ch. 1, Para. D.1.b repeats these limits.
Pass-through companies
A business that pays no entity-level income tax adjusts its net income. It computes state and federal tax at the marginal rates that would apply if it were a taxable corporation (§ 121.301(b)(2)(i)-(iii)). Ask your CPA to run the numbers.
When it helps
A business over its industry limit may still pass if net worth and income are within these figures. Your lender can test both standards.
How a lender verifies it
For this standard, lenders obtain tax transcripts for the last two years, or all years in operation if fewer. See Sec. A, Ch. 5, Para. B, p. 95. SBA Express and Export Express lenders still obtain transcripts to confirm filing and size. They may skip reconciliation only if they do not use business financial information to decide credit (Para. B.4.g).
Ask lending partners about your loan
Tell us the amount you need and what it is for. We refer you to lenders that may fund businesses like yours, and it costs you nothing.
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