SBA SOP 50 10 8.1, App15.A — Change of Ownership Requirements.

SOP 50 10 8.1 App15.A

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

A. Change of Ownership Requirements. (13 CFR § 120.202) A Borrower(s) (and any individual Co-Borrower as permitted in this Appendix) may use loan proceeds to fund a change of ownership through either a stock purchase (including a stock redemption) or an asset purchase, only under the circumstances described under this Paragraph. An asset purchase will be deemed a change of ownership and must comply with all of the requirements of this Paragraph if the Applicant(s) is purchasing all or substantially all of the assets of the seller’s business and is continuing the operations of the seller’s business. If there is not a clearly defined continuity of operations and the Applicant is not continuing the seller’s business operations the Lender may evaluate the transaction as a start-up. The Lender must apply all applicable start-up requirements set forth in the applicable sections of this SOP based on the 7(a) delivery method utilized, including but not limited to, requirements governing equity injection, eligibility, maturity structure, underwriting and uses of proceeds. The following requirements apply to all change of ownership structures: 1. The change of ownership must promote the sound development and/or preserve the existence of the small business. A 7(a) loan cannot be made solely to an individual. The small business must be either the Borrower or a Co-Borrower. 2. For purposes of the 7(a) loan facilitating the change of ownership, the “Business Purchase Price” excludes all owner-occupied commercial real estate assets being acquired in the transaction. The Lender is required to input the Business Purchase Price into the SBA Loan System. a. When real estate is part of the acquisition, the Lender must remove the appraised value of the real estate from the price set by the purchase and sale agreement to determine the Business Purchase Price for purposes of financial due diligence requirements set forth in this Appendix. 3. Financial due diligence is required on all change of ownership transactions. a. The financial due diligence requirements are determined by the Business Purchase Price. The threshold for this requirement is independent of total project costs (all costs required to become operational, regardless of the source of funds, except for lines of credit and 504 loans), the application of Borrower equity, structuring of seller debt, or any other measure that would reduce the 7(a) loan amount facilitating the purchase. b. When a change of ownership transaction requires a Quality of Earnings (QoE) report as part of the necessary financial due diligence, the Lender must use the report’s findings to calculate the Debt Service Coverage. If that Debt Service Coverage does not support the business valuation and proposed debt structure, the loan amount must be reduced accordingly. Additional equity (unlimited or limited) may be used to make this adjustment 4. The total debt eligible to support a change of ownership transaction (including seller debt that is not on full standby) is limited to the business valuation amount and must be supported by the Debt Service Coverage of the Applicant. 5. Lenders must adhere to all requirements pertaining to Business Valuations and Quality of Earnings reports as outlined in Paragraph C.1 of this Appendix. 6. Intangible Assets: A 7(a) loan may be used to finance a change of ownership that includes intangible assets (including, but not limited to, goodwill, client/customer lists, patents, copyrights, trademarks, intellectual property, and agreements not to compete) as long as the financial due diligence requirements set forth in Paragraph C.1 of this Appendix are met. 7. Tax Transcripts: Since the underwriting of change of ownership transactions is managed through the financial due diligence requirements, tax transcripts are considered an extension of the financial due diligence requirements that govern change of ownership transactions. As such, Lenders must comply with the requirements in Section A, Ch. 5, Para. B, IRS Tax Transcript/Verification of Financial Information to validate the information reported by the seller. 8. Seller earnouts/buyer rebates: Seller earnouts are prohibited; however, buyer rebates based on business performance are allowed because this is a benefit to the Borrower. If the Borrower receives funds based on a rebate from the seller, proceeds must be applied to pay down the principal balance of the 7(a) loan that funded the change of ownership. In accordance with 13 CFR § 120.223, SBA’s requirement to apply seller rebate payments to principal does not trigger a subsidy recoupment fee. Working capital adjustment provisions (e.g. working capital “true-up") contained in the Purchase and Sales Agreement are not a rebate to the Borrower as the funds remedy a lack of working capital at the time of the acquisition. As such, any cash remitted to the borrower may be retained to support the ongoing working capital needs of the business and is not required to pay down the change of ownership loan. 9. Except as provided below, the seller in a Business Expansion or Initial Acquisition change of ownership transaction may not remain as an officer, director, stockholder, or employee of the business. If a transitional period is needed to assist the business, the small business may contract with the seller as a consultant for a period not to exceed 24 months (in aggregate, including any extensions). When the purchaser is buying a business owned by an ESOP, the employees of the business (who are members of the ESOP Trust) may remain as employees of the business after the sale. The seller may stay on as an owner, officer, director, stockholder, or employee of the business or the ESOP when: a. One or more of the current owners is selling less than their entire percentage of their current ownership (Owner Buyout – Partial Change); or b. The purchaser is an ESOP or equivalent trust or a cooperative and is acquiring a controlling interest (51% or more) in the employer business (including when the ESOP or equivalent trust or cooperative is acquiring 100% ownership of the small business). 10. The Lender’s loan documentation must include: a. All related business, stock, and asset purchase agreements, including all schedules, and amendments. b. For transactions involving external capital, the Lender must underwrite and review the terms of all other debt and equity investments. For purposes of change of ownership, any transaction that involved an owner receiving shares in the business in exchange for cash or other contributions would be considered equity investments. c. A site visit for the Applicant and for the business being acquired. The Lender must document in its loan file the date of the site visit as well as comments. For businesses not operating out of a physical location, the Lender must document what steps were taken to verify the operations of the Seller. For businesses that operate on a virtual, or otherwise non-customer facing physical location basis (i.e. e-commerce), the Lender may choose not to conduct a physical site visit. The Lender must document in the loan file the basis for determining that a site visit would not materially enhance verification of business operations and may utilize alternative methods, such as virtual meetings or review of business records, to confirm the existence and activity of the business. d. When real estate is part of the acquisition, a commercial real estate appraisal must meet the requirements in Appendix 19, Para. A.1.g. Commercial real estate appraisal requirements. e. Please note, for change of ownership transactions which include the acquisition of commercial real estate, the real estate must be structured as either a separate loan or on a blended amortization as outlined in Para. B.1.a.i. unless meeting the Special Purpose Property exemption as described in the same paragraph. f. With the exception of vehicles as described in Para. C.3.d.i., evidence that all assets, including transferable licenses (e.g., liquor license) conveyed as a result of purchase are properly secured as collateral by Lender.

Source: SBA SOP 50 10 8.1, App15.A — Change of Ownership Requirements. · source URL · snapshot 0fb0c4692cf52938