Under the SBA’s small business affiliation regulations, an otherwise small business can be deemed affiliated with a larger business when the firms share “substantially identical business or other interests.” Under this rule, affiliation will be typically be found, as a matter of law, when a small business concern derives 70% or more of its revenue from another firm.
Because most new businesses don’t start up with numerous clients or contracts, a mechanical application of the 70% rule could be disastrous for a new small business faced with an SBA size determination. Thus, the “start-up” exception to the SBA’s affiliation rules—which applies to relatively new businesses whose revenues from its alleged affiliate are insufficient to sustain business operations—can be the saving grace for a small business trying to earn business from the government.
So it was in a recent case decided by the SBA Office of Hearings and Appeals.