Proposed SBA Regulations Appear to Weaken the Impact of the Main Street Employee Ownership Act

The Main Street Employee Ownership Act, signed into law on August 13, was drafted to encourage loans to facilitate ESOP and worker cooperative transactions. ESOP advocates expected that the law would allow banks qualifying under the SBA's 7(a) Preferred Lender Program to make loans for ESOP transactions without the each loan having to get prior approval from the SBA. Approving loans on a case-by-case basis adds a cumbersome layer of processing that can discourage using the SBA program. The Act states that the SBA "may" drop the existing requirement that ESOP loans go through this process, allowing approved lenders to create loans with an SBA guarantee.

In proposed regulations posted on September 28, the SBA said it would continue to require case-by-case approval of ESOP transactions due to their complexity.

Comments on proposed regulations can have a meaningful impact. If you want to comment on the proposed regulations (document ID SBA-2018-0009-0001, Regulation Identifier Number 3245-AG74), submit them by November 27 by any of the following methods:

• Federal eRulemaking portal: https://www.regulations.gov/document?D=SBA-2018-0009-0001. Follow the instructions for submitting comments.
• Mail: Kimberly Chuday or Thomas Heou, Office of Financial Assistance, Office of Capital Access, Small Business Administration, 409 Third Street SW, Washington, DC 20416.
• Hand delivery/courier: Kimberly Chuday or Thomas Heou, Office of Financial Assistance, Office of Capital Access, Small Business Administration, 409 Third Street SW, Washington, DC 20416.

The NCEO is preparing its own comments. Contact Corey Rosen at [email protected] for a copy.