SBA Eases Lifetime Limit on Mentors

The SBA has long had a lifetime limit of two mentors for each protégé–and this limit was enforced very strictly. Say the mentor ghosted the protégé, or the two just never did any contracts together. Well, too bad, that still used up one of the two lifetime mentors that a protégé could have.

They say there are no second chances, but the SBA’s new rule will allow for second chances on a mentor protégé arrangement in some circumstances, which should benefit protégés going forward.

The old SBA rule wasn’t really clear that a protégé could only have two lifetime mentors, it only said that a “protégé firm may generally have only one mentor at a time. SBA may approve a second mentor for a particular protégé firm where the second relationship will not compete or otherwise conflict with the assistance set forth in the first mentor-protégé relationship” and other conditions are met.

But the SBA’s website said (and actually still does say) that a protégé can “[h]ave no more than two mentors in the business’ lifetime.” While the two mentor limit is still in place, SBA has added some flexibility to this limit.

First, if the relationship sours quickly, it won’t count against the two-mentor max. As SBA explained, “the proposed rule amended § 125.9(e)(6) to not count any mentor-protégé relationship toward a firm’s two permitted lifetime mentor-protégé relationships where the mentor-protégé agreement is terminated within 18 months from the date SBA approved the agreement.”

However, if SBA believes that the protégé is abusing this 18-month window, it can pump the brakes on the protégé seeking more mentors. “[I]f a specific small business protégé appears to use the 18-month test as a means of using many short-term mentor-protégé relationships, SBA may determine that the business concern has exhausted its participation in the mentor-protégé program and not approve an additional mentor-protégé relationship.”

Second, the rule will eliminate the reconsideration process for denial of a mentor-protégé agreement. SBA eliminated the reconsideration process because the current rule allows a “small business to submit a new (or revised) mentor-protégé agreement to SBA at any point after 60 days from the date of SBA’s final decision declining” the relationship. Because the company can submit a new agreement, the reconsideration process is unnecessary.

Third, SBA can step in if the mentor is not pulling its weight. The revised rule includes a process for the protégé to ask SBA to step in if the mentor is not providing the proper assistance and then allow a replacement mentor for the remaining term.

Such a request would cause SBA to notify the mentor that SBA had received adverse information regarding its participation as a mentor and allow the mentor to respond to that information. If the mentor did not overcome the allegations, SBA would terminate the mentor-protégé agreement. The final rule also adds a provision that allows a protégé to substitute another firm to be its mentor for the time remaining in the mentor-protégé agreement without counting against the two-mentor limit. If two years had already elapsed in the mentor-protégé agreement, the protégé could substitute another firm to be its mentor for a total of four years.

Under the rule, SBA will

SBA will notify the mentor of such determination and afford the mentor an opportunity to respond. The mentor must respond within 30 days of the notification, presenting information demonstrating that it did satisfactorily provide the assistance set forth in the mentor-protégé agreement or explaining why it has not provided the agreed upon assistance and setting forth a definitive plan as to when it will provide such assistance.

If the mentor does not respond adequately, SBA has a number of penalties, including

  1. Terminating the agreement,
  2. Barring the mentor from the program for two years,
  3. Recommending the agency stop work on current contracts or allow the protégé to finish work, or
  4. Considering debarment.

While SBA kept to two-mentor lifetime limit, it added some much needed flexibility for those times when the mentor simply doesn’t work out. It also added some teeth for keeping mentors in line. This will benefit those protégé companies who find themselves in an unfortunate situation through no fault of their own. Prospective mentors should also be aware of these new procedures for SBA to intervene in the relationship.

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