The SBA’s HUBZone program can be a confusing program to understand and comply with. Keeping on top of the regulations requires keeping up on legislative and program changes on a revolving basis. The SBA has recently frozen the HUBZone maps and changed principal office rules. In a corresponding move, the SBA has updated the Frequently Asked Questions (FAQ) section for the HUBZone program to clarify some details on HUBZone Program rules.
Here are some key points you should know about this latest FAQ update.
Previously, we blogged about SBA freezing the HUBZone maps through 2022, and into 2023. We also discussed the SBA shedding light on the principal office long-term investment rule. Now, the SBA has updated its FAQ’s in line with the recent changes. These latest updates .
1. When will HUBZone maps be frozen until?
The SBA realized that the 2020 census data would not be available in time to update the HUBZone maps as originally planned on January 1, 2022. After making this realization, the SBA sought to freeze the current maps to allow time for the new maps to be generated. The new HUBZone map update will be realized on June 30, 2023. The SBA may grandfather in firms that demonstrate they made investments in Qualified Disaster Areas between December 26, 2019 and June 30, 2021 in reliance on prior guidance from SBA. SBA will review requests for grandfathering on a case-by-case basis. This only applies to entities residing in a both a qualifying and non-qualifying area at the time of the certification’s anniversary date.
2. Long term investment rule changes.
SBA’s goal is to incentivize long-term investments in HUBZones, including purchasing buildings and executing leases of at least 10 years. The rub for current participants is that this provision only applies AFTER December 26, 2019. That means for firms which certified prior to December 26, 2019 cannot take advantage of this provision. The provision only allows for this long-term investment to last for up to 10 years, it does not extend forever. The date that matters is the date of recertification, not the date of the lease. The key here, is if the lease is executed January 1, but recertification happens in July, the July date would start the 10-year clock. Also, the entity cannot share the office with another entity to qualify for this provision.
Additionally, a firm which resides in a non-qualifying area (Redesignated Area or a Qualified Disaster Area) does not qualify for this provision. However, if the principal office is in both a qualifying, and non-qualifying area simultaneously, this provision will apply. This language can be confusing, so to simplify this, so long as the principal office can show it resides in a qualifying area, the firm can take advantage of this provision. Also, “the SBA will grandfather in firms that recertified between December 26, 2019 and June 30, 2021, and had principal offices in Redesignated Areas or Qualified Disaster Areas and applied the legacy provision in order to recertify.” Should the principal office be located in one of the non-qualifying locations, the SBA has granted a grace period until December 31, 2021 to move the principal office.
3. Legacy employee residency requirement changes.
The final rule allowed for so-called legacy employees to count toward the 35% HUBZone employee residency requirement. A legacy employee is one that does not currently live in a designated HUBZone area but resided in a HUBZone for at least 180 days prior to the certification or anniversary date, occurring after December 26, 2019. The legacy employee must have continued to live in a HUBZone for at least 180 days immediately after certification or anniversary date and must have remained an employee since that time. This rule only applies to employees who resided in a Qualified Census Tract, Qualified Non-Metropolitan County, Indian Reservation, Qualified Base Closure Area, or Governor- Designated Covered Area. This does not apply to employees who resided in a Redesignated Area or Qualified Disaster Area during the 360 day time period (180 days before and 180 days after certification or recertification). However, if the employee resided in both a qualifying and nonqualifying area, the provision would apply.
4. What if my company is doing things by telework due to COVID-19?
The SBA, for now, considers employees placed on mandatory telework to be in compliance with the principal office employee’s requirement. The rule extends to employees hired after the start of the pandemic. In order for these new employees to count, the firm must submit a written, signed statement to the SBA stating that the employee would have worked at the principal office prior to the pandemic. Should an application be in process between March 13, 2020 and September 30, 2021, the employee rule applies. This flexibility only extends until the end of September 2021, whether this will be extended is yet to be seen.
5. Changes to the application and review process.
Validating applications has been reduced from 10 to 2 business days. Requirement to upload documents was reduced from 10 to 3 business days. The non-response closure date was reduced to 5 days, which results in the application being declined. In order to avoid this fate, be sure to respond to all SBA inquiries within 5 days of receipt, unless the document specifies a different timefram. Plus, the SBA is moving toward utilizing BOX for document uploads. We have utilized BOX, and much like Dropbox or other types of uploads, it does create a relatively easy format for uploading documents.
The HUBZone program is constantly on shifting sands due to changes in maps, office locations, and employees changing homes. The hope is that, with the long-term investment rule and legacy employee rule, some stability will come to the HUBZone program. This program, by the very nature of it, requires constant upkeep and maintenance. We will keep an eye out for new guidance as 2021 draws to a close.
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