The Employee Ownership Update
October 15, 2018
Proposed SBA Regulations Appear to Weaken the Impact of the Main Street Employee Ownership ActThe 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.
How Is Your Company Celebrating Employee Ownership Month?Let us know what you're up to on social media and participate in our #PictureOwnership photo contest. Post a photo on Facebook or Twitter with the #PictureOwnership hashtag and get a chance to win a box of NCEO employee owner merchandise.
New Rules for Qualifying as Veteran-Owned Small Business Add Confusing Definition for a Qualifying ESOPThe Department of Veterans Affairs (VA) and the Small Business Administration (SBA) have issued joint rules (38 CFR Part 78 and 13 CFR Part 125) that eliminate inconsistencies between the two agencies' definitions of veteran-owned and service-disabled-veteran-owned small businesses. As part of that, the rules incorporate a change from the 2017 Defense Appropriations Act that allowed companies with ESOPs to exclude the ESOP's ownership to determine whether the company is majority-owned by qualifying veterans.
The rule requires that the company be both (1) publicly traded and (2) at least 51% owned by a qualifying veteran or veterans, excluding the ESOP's ownership. ESOP experts have been baffled by this change in the law, and there is no committee report explanation for what it is meant to do. There were also no comments when the rules were proposed. It seems extremely unlikely for a company to both have an ESOP and be majority-owned by qualifying veterans, and in addition be publicly traded.