The Small Business Administration (SBA) recently issued a final rule implementing a very important change to the Historically Underutilized Business Zone (or HUBZone) program. The final rule—which becomes effective on May 25, 2018—“amends the HUBZone regulations to allow indirect ownership by United States citizens to more accurately align with the underlying statutory authority.” As the SBA points out, “[d]irect ownership is not statutorily mandated,” and thus the SBA “believes that the purpose of the HUBZone program—capital infusion in underutilized geographic areas and employment of individuals living in those areas—may be achieved whether ownership by U.S. citizens is direct or indirect.”

The final rule explains that the Small Disadvantaged Business (SDB) program and the SBA’s “other currently active socioeconomic programs (including the 8(a) [Business Development] program, the [Woman-Owned Small Business] program, and the [Service-Disabled Veteran-Owned] small business program) are intended to assist the business development of small concerns owned and controlled by certain individuals, so requiring direct ownership for these programs is consistent with their purpose.” According to the final rule, “[t]he HUBZone program differs in that the program’s goals do not center on the socioeconomic status of the [small business concern] owner but rather the location of the business and the residence of its employees.”

In light of the foregoing, “[t]his direct final rule deletes the requirement that ownership by United States citizens in the HUBZone program must be direct, and instead it merely copies the statutory requirement that a HUBZone small business concern must be at least 51% owned and controlled by United States citizens.”