SBA SOP 50 10 8.1, A.Ch2.B — Loans to Employee Stock Ownership Plans (ESOPs)

SOP 50 10 8.1 A.Ch2.B

Effective 2026-10-01 · publisher's stamp for this provision

B. Loans to Employee Stock Ownership Plans (ESOPs) For 7(a) loans only: SBA may assist a qualified employee trust (or equivalent trust) that meets the requirements and conditions for an ESOP prescribed in all applicable IRS, Treasury, and Department of Labor regulations. 13 CFR §§ 120.350 - 120.354 The Lender must confirm that the ESOP meets the requirements and conditions prescribed by other regulatory bodies. SBA will not review any applications, even those submitted via non-delegated processing, for compliance with the requirements imposed by other regulatory bodies for these types of transactions. 1. SBA may guarantee a 7(a) loan to an ESOP for two purposes: a. Purchasing a controlling interest (at least 51 percent) in the employer small business; or b. Purchasing qualified employer securities. The employer small business may use the funds received from the purchase of the qualified employer securities for any general 7(a) purpose. c. In the case of either a. or b. above, the small business concern must be a Co-Borrower on the 7(a) loan. 2. SBA may guarantee a 7(a) loan to an eligible employer small business for the sole purpose of making a loan to a qualified employee trust (ESOP) that results in the qualified employee trust owning at least 51 percent of the employer small business concern. 3. Transaction costs associated with the purchase of the controlling interest by the ESOP or equivalent trust may be included in the use of proceeds, but any transaction costs associated with setting up the ESOP may not be included in the use of proceeds. 4. If the seller of the employer small business remains as a partial owner, the seller must provide a full, unlimited guarantee regardless of percentage of ownership. Note: This is a statutory requirement and cannot be waived. 5. Lenders may process loans to an ESOP or to an eligible small business owned or controlled by an ESOP under delegated authority. However, Lenders are reminded that regardless of processing method (delegated or non-delegated) the ESOP must be in compliance with IRS, Treasury, and the Department of Labor requirements. 6. The IRS prohibits ESOPs from guaranteeing a loan; therefore, SBA does not require the ESOP to guarantee the loan. In addition, members of the ESOP are not required to personally guarantee the loan. All owners of the Applicant who hold an ownership interest in the small business outside the ESOP are subject to SBA’s guaranty requirements. (See Ch. 5, Para. A, Guaranties, of this Section for more information.) 7. The application cannot be structured as an EPC/OC. (13 CFR § 120.111(a)(6)) SBA regulations require each 20% or more owner of the EPC and each 20% or more owner of the OC to guarantee the loan, and the regulation does not provide for an exception. 8. Prior to first disbursement, the Lender must obtain documentation that the ESOP or equivalent trust meets the requirements of all applicable IRS, Treasury, and Department of Labor regulations. Whether processed under delegated or non-delegated procedures, the SBA Lender must determine whether the applicant and ESOP plan meet legal requirements and the requirements and conditions prescribed by other regulatory bodies. 9. Loans to ESOPs for the purpose of purchasing a controlling interest (at least 51 percent) in the employer small business are not subject to the requirement for equity injection. 10. When an SBA loan is used to purchase a business owned by an ESOP resulting in a change of ownership where the ESOP is being dissolved, the employees (owners of the ESOP), except for illegal aliens, may remain as employees of the business despite other provisions in this SOP to the contrary. 11. Regardless of the requirements stated throughout this SOP for business valuations, an independent business valuation is not required when the Lender is making a loan involving ESOPs for the types of loans discussed in this Paragraph B. In lieu of an independent business valuation, the Lender may use the valuation obtained by the ESOP that was made in accordance with ERISA specifications.

Source: SBA SOP 50 10 8.1, A.Ch2.B — Loans to Employee Stock Ownership Plans (ESOPs) · source URL · snapshot 0fb0c4692cf52938