Skip to main content
Find Your Local Branch
Back
Scroll to top

Changes to SBA 7(a) Program for Business Acquisitions

Running A Business 4 min read

Ready to talk to an expert?

Find A Location Get In Touch

Changes to SBA Loans for Business Acquisitions Coming August 1, 2023

If your client is considering an SBA Loan to acquire or change ownership percentage of a business, they could be impacted by the recent changes announced by the Small Business Administration (SBA). A number of updates to their Standard Operating Procedures (SOP), will be made effective August 1, 2023. The following is an overview of the updates. Our Business Development Officers are well-versed in these changes and ready to discuss how they may impact your client’s SBA lending opportunities.

Read more about these upcoming changes based on the type of acquisition or ownership change you would be making:

SBA Loans financing a complete change of business ownership

At a minimum, SBA requires an equity injection of at least 10% of the total project costs. This means that in order to qualify, you’ll need to provide 10% of all costs required to complete the change of ownership, including working capital needs regardless of the source of funds.

Seller debt may not be considered part of the equity injection unless it is on full standby for the first 24 months of the SBA 7a loan or it is a debt that is on partial standby (only interest payments are being made). Partial standby debt will be considered equity if there is historical business cash flow available to make the payments and at least a quarter of the SBA-required equity injection is from a source other than the seller.

If the buyer owns a business that is in the same 6 digit NAICS code, will have identical ownership and located in the same geographic area as the entity being acquired, SBA considers this to be a business expansion and SBA will not require a minimum equity injection. However, depending on the strength of the buyer, the bank may require an equity injection.

SBA Loans financing a change of ownership between existing owners

If the 7(a) loan will finance more than 90% of the purchase price of a partner buyout, both of the following must be met:

  1. The remaining owner(s) must certify that they have been actively participating in the business operation and held the same or an increasing ownership interest in the business for at least the past 24 months.
  2. The business balance sheets for the most recent completed fiscal year and current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the change in ownership.

In the event the Lender is unable to document that both (i) and (ii) above are satisfied, the remaining owner(s) must contribute cash in the amount of at least 10% of the purchase price of the business, as reflected in the purchase and sale agreement.

SBA Loans that finance changes of ownership other than complete changes of ownership or complete partner buyouts

Loan proceeds may be used to fund the purchase of a portion of one or more owner’s interest in the business or of the business itself.  Both the business and the individual owner(s) who is acquiring the ownership interest must be co-borrowers on the new loan. All owners with 20% or more ownership will be required to provide an unlimited full guaranty. The percentages of ownership for this requirement will be based on the post-sale percentage of ownership in the business.

  1. The business balance sheets for the most recent completed fiscal year and current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the change in ownership.
  2. In the event the Lender is unable to document that (i) above is satisfied, the borrowers must contribute cash in the amount of at least 10% of the partial change of ownership purchase price, as reflected in the purchase and sale agreement.

If a short 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 12 months including any extensions. The seller may stay on as an owner, officer, director, stockholder or Key Employee of the business when one or more of the current owners is selling less than their entire percentage of their current ownership or 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).

Ready to talk to an expert?

Find A Location Get In Touch
Share:

You may be interested in...

The Hutzlers, owners of Read's Uniforms Read’s Uniforms is Dressed for Success Theodore Roosevelt once said, "Believe you can, and you're halfway there." For Eric and Shannon Hutzler, owners of Read's Uniforms in Asheville, North Carolina, this sentiment really hits home. 3 min read
First Bank Bennett Branch sign. Best Business Checking Account in South Carolina If you’re planning to open a business in South Carolina, you will need a business checking account. If you already own a business but are looking to switch banks, you’ll want the best business checking account. Business Checking Account Benefits with First Bank So how do you know what the best business checking accounts look like? First Bank has fifteen locations in South Carolina, and has a variety of different business checking account options with some of these available features: Automated online bill paying Online and mobile banking* Monthly statements by paper mail or email Credit cards with rewards program** Account activity alerts Various ways of avoiding monthly maintenance fees*** Interest-bearing capabilities 6 Mistakes to Avoid When Opening a SC Business Checking Account With so many features and benefits, it is easy to see that First Bank offers the best business checking accounts in South Carolina. But before you open an account, it’s important to make sure you avoid the 6 mistakes that small businesses tend to make when opening a checking account, according to Business News Daily: Putting incorrect or missing information at checking account setup: Many small business owners mistakenly bring the wrong paperwork in when they go to open an account. To avoid this, make sure you ask the bank what information you’ll need to provide prior to coming in. Not opening a separate business account from your personal one: When you don’t have a designated business account, it can difficult to track your financial expenses from your personal ones. It can be more beneficial to open a separate business account for revenue, collected sales tax, estimated income tax, and payroll—especially before it’s time to file for taxes. Not planning for authorized check signing: If your small business includes a partner or staff members, it’s important to consider how many signatures can authorize a transaction from your business checking account. This can easily be set up when you open a business checking account. Not maintaining the monthly balance minimum: Always make sure that your business funds are above the minimum balance requirement in order to make the most of your banking experience, like First Bank’s no monthly maintenance fee.*** Not ordering the correct checks: One of the most common mistakes new small businesses make is printing the wrong name on business checks. It’s important to not only double check the spelling, but to also look into ordering electronic checks as well as paper ones. Working with the wrong bank for your business: Opening a small business is a huge step for anyone, and you need a bank that will work as hard as you do for the success of your new career. At First Bank, we are dedicated to helping small business owners in South Carolina achieve their dreams.   *While First Bank does not charge for mobile banking, your mobile carrier’s message and data rates may apply. The First Bank Digital Banking Apps are available for select mobile and tablet devices. There is no charge from First Bank, but message and data rates may apply. Must enroll in First Bank Online Banking and download the First Bank Digital Banking App from the App Store or Google Play. Apple, the Apple logo, and iPhone are trademarks of Apple, Inc., registered in the U.S. and other countries. App Store is a service mark of Apple, Inc. Android and Google Play are trademarks of Google Inc. **Loans subject to credit approval. See our Terms and Conditions for complete details on our One Rewards Program. MasterCard, Debit MasterCard and the MasterCard brand marks are trademarks of MasterCard International Incorporated. ***Account holders may avoid the Monthly Maintenance Fee by meeting any of the requirements listed in the Keep it Fee Free™ section of the account summary table for their account type. Other account service fees may apply as described in the Account Services Fee Schedule, also available at your local branch. ———- Sources: Business News Daily: http://www.businessnewsdaily.com/6281-bank-account-errors-6-mistakes-small-businesses-make.html 5 min read
Doctors Office Build a Strong Foundation for Your Medical Practice First Bank’s Travis Bailey assists a variety of small businesses, including medical and dental offices, with their financial needs. We spoke to him to learn about the biggest financial challenges a practice might face. 3 min read
Image for tile. Why small businesses need powerful tools Sally’s problem (and her simple solution) It’s 9:12 a.m. Sally refreshes her email while an impatient client waits on the phone. She’s sure she sent the invoice yesterday. It should be there, waiting in their inbox — but it’s not. After months of hard work, her CPA practice is starting to grow… but the tools she’s been using to run her business haven’t kept up. She’s constantly juggling online payment apps, hard-to-track invoices, questions from her two assistants, and phone calls with clients. It’s exhausting. If any of that sounds familiar, don’t worry. The solution may be as simple as choosing a better business checking account. The hard stage that no one talks about Every business reaches a point where things start to shift. You’re not trying to make it work anymore — it actually is working! — but your systems and tools still look the same as they did when you were just starting out. Your business might look something like this: The business is real and starting to grow Revenue is steady and plans for the future are forming Business tools feel scattered, disorganized, or difficult to use You end up feeling like you’re plugging more and more outlets into a power bank, and suddenly there’s no more room — now, when you try to add another piece, something else stops working. The good news: Growing pains are normal for small businesses Most business owners face early headwinds once real growth starts to kick in. There’s nothing wrong with the product or the strategy — they’ve simply outgrown their infrastructure. This is when relying on free or fragmented tools starts to be a huge pain point. Clear transaction records and useful reporting emerge as obvious business needs. Process problems multiply until they start to impact clients and customers. With high demand and insufficient tools, it’s hard to manage the day-to-day essentials — let alone find the time to troubleshoot solutions. But the fix may be as simple as taking a hard look at your business bank account. What should a business checking account actually do? Too many small business owners think that the bank is only there to hold their money. The truth is that a great business checking account can act as the central hub of your entire operation — like a financial breaker panel that keeps everything running smoothly. The right account can help you: Separate your personal and business finances Easily track all of your transactions Simplify payroll, vendor payments, and more At First Bank, we understand that even small businesses have a lot of moving parts. That’s why we created Business Elite Checking. Business Elite helps you move beyond the basics Designed for small and mid-sized businesses that want to streamline and simplify, Business Elite Checking helps business owners cross common pain points off their to-do list. Besides being packed full of perks, it’s also easy to eliminate the monthly maintenance fee by enrolling in useful services like credit card processing or by taking out a business credit card. Get a clear picture of your finances Mixing your personal and business expenses is a headache waiting to happen. Clean separation makes bookkeeping, tax prep, and financial reporting easier. Enjoy more room to grow Business Elite offers 500 free transactions per month and up to $25,000 in cash deposits at no additional charge — because every growing business needs space to operate. Protect your business from fraud As your business scales, so does exposure to fraud. That’s why Business Elite Checking includes identity protection services, data breach support, and sophisticated monitoring tools. Do everything, all in one place The right account makes it easy to manage merchant services, payroll direct deposit, business lines of credit, and more — without having to juggle multiple platforms. Get perks like 24/7 telehealth Access to 24/7 video or phone visits with licensed doctors, providing convenient healthcare for you and your family. All with zero copays. Start building a solid foundation now If your business is moving forward but your tools aren’t keeping up, now is the perfect time to talk to a local business banker about what comes next. You’ve already done the hard work of building something new — together, we can make it even better. 4 min read
First Bank logo
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognizing you when you return to our website and helping our team to understand which sections of the website are the most popular and useful.