SBA SOP 50 10 8, A.Ch2.D — 401(K) PLANS INCLUDING ROLLOVERS AS BUSINESS START-UPS (ROBS)

SOP 50 10 8 A.Ch2.D

Effective 2025-06-01 · publisher's stamp for this provision

D. 401(K) PLANS INCLUDING ROLLOVERS AS BUSINESS START-UPS (ROBS) PLANS A business that is owned in whole or in part by a 401(k) plan (including a Rollovers as Business Startups (ROBS) plan) may be eligible provided the SBA Lender complies with the requirements in this section and the plan complies with all applicable IRS, Treasury, and Department of Labor requirements. When evaluating applications involving such businesses, SBA Lenders must consider that a 401(k) plan sponsor’s failure to administer the plan properly may result in plan disqualification and adverse tax consequences to the plan’s sponsor and its participants, which may impact the Borrower’s ability to repay the loan. The SBA Lender must confirm that the ROBS Plan 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. Applications where the Applicant or any owner (including a corporation formed through a ROBS plan) is a: • Single Employer Plan, including ROBS plans, may be processed under an SBA Lender’s delegated authority. Note: Any subsequent contributions required under IRS and/or Employee Retirement Income Security Act (ERISA) regulations are permitted. • Multiple-Employer Plan, (i.e., plans that hold in trust the assets of other businesses), including ROBS plans, may be processed under an SBA Lender’s delegated authority. NOTE: Size standards and maximum SBA guarantee limits to a Borrower and its affiliates apply to the multiple-employer plan. 1. The SBA Lender must: Identify in E-Tran and in the credit memorandum: i. The specific type of 401(k) plan (Single Employer Plan, Multiple Employer Plan, etc.); and Section A, Ch. 2 Special Transaction Structures ii. If applicable, that the Applicant is using a ROBS plan for the equity contribution or other purpose (if the latter, specify the purpose of the ROBS plan). Obtain the full unconditional guaranty of the sponsor(s) of the 401(k) plan regardless of the sponsor’s individual ownership interest in the Applicant concern. This guaranty must be a secured guaranty if required by SBA’s existing collateral policies. For more information on collateral: For 7(a), see the collateral section in each delivery method chapter of Section B. For 504, see Section C, Ch. 1, Para. E.2.a., Collateral. The SBA Lender must obtain the following 401(k) plan documentation with the loan application: i. A favorable determination letter from IRS providing advance assurance that the terms of the 401(k) plan satisfies qualification requirements. IRS Publication 794 explains the significance of the favorable determination letter, points out critical areas that may affect the qualified status of a 401(k) plan, and provides general information on the reporting requirements for the 401(k) plan; ii. For an existing 401(k) plan, the Annual Return/Report of Employee Benefit Plan (e.g., IRS Form 5500, IRS Form 5500-EZ, etc.); iii. For a ROBS plan: a) C Corporation formation documents; b) 401(k) plan adoption documents; c) Stock purchase documents; and d) Related corporate resolutions. 2. SBA loan proceeds may not be used for any 401(k) plan formation costs. 3. The application cannot be structured as an EPC/OC. (13 CFR § 120.111(a)(6)) Under IRS regulations, the 401(k) cannot guaranty the loan. 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. 4. Prior to any disbursement of loan proceeds, the SBA Lender must obtain the Borrower’s certification that the Borrower and the 401(k) plan are in compliance with all applicable IRS, Treasury, and Department of Labor requirements and that it will comply with all relevant operating and reporting requirements. Whether processed under delegated or non-delegated procedures, the SBA Lender must determine whether the applicant and proposed structure meet legal requirements and the requirements and conditions prescribed by other regulatory bodies for these types of transactions. Section A, Ch. 3: Uses of Proceeds CHAPTER 3: USES OF PROCEEDS

Source: SBA SOP 50 10 8, A.Ch2.D — 401(K) PLANS INCLUDING ROLLOVERS AS BUSINESS START-UPS (ROBS) · source URL · snapshot 535743ffe062cc34