SBA SOP 50 10 8, B.Ch2.A.2 — Change of Ownership
Verbatim text of SBA SOP 50 10 8 section B.Ch2.A.2 (Change of Ownership), effective 2025-06-01. 5 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, B.Ch2.A.2 — Change of Ownership — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 B.Ch2.A.2
2. Change of Ownership (13 CFR § 120.202) A Borrower(s) (and any individual Co-Borrower as permitted under this Paragraph), may use loan proceeds for a change of ownership, whether the change of ownership is accomplished through 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. The following requirements apply: The change of ownership must promote the sound development and/or preserve the existence of a small business; An SBA-guaranteed loan cannot be made solely to an individual. The small business must be either the Borrower or a Co-Borrower; The maximum 7(a) loan uses of proceeds for any change of ownership is capped at the business valuation amount. When the business valuation is lower than the sales agreement, any financed capital required to meet the shortfall (in addition to the 7(a) loan and any equity injection) must be subordinate to the 7(a) loan. 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 the rebate, it should first be applied to pay down the 7(a) loan to a point that will not trigger a subsidy recoupment fee, and any remaining funds may be used for business purposes; Except as provided below, the seller may not remain as an officer, director, stockholder, or employee of the business. 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 employee of the business or the ESOP when:
SOP 50 10 8 B.Ch2.A.2.i
i. One or more of the current owners is selling less than their entire percentage of their current ownership (partial change of ownership); or ii. 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). Change of Ownership Resulting in a New Owner (complete change of ownership): A change of ownership resulting in a new owner may be financed under the following circumstances: i. A small business is purchasing 100% of the ownership interest in another business. The acquiring entity will be the Borrower. If, however, the business being acquired will continue to exist as a separate entity, the acquiring entity and the small business being acquired must be Co-Borrowers. All owners of the Applicant business, and the business being acquired, if it is a Co- Borrower, are subject to the requirements for guaranties in Section A, Ch. 5, Para. A, Guaranties. ii. A Person who is not an existing owner is purchasing 100% of the ownership interest in the small business. The small business and the Person who is acquiring the ownership interest must be Co-Borrowers. In addition, the Note must be executed, jointly and severally, by both the Person who acquires the ownership interest(s) and the small business whose ownership interest is being acquired. If the small business denies liability for the debt based on an alleged failure of consideration under applicable state law, SBA may deny liability on its guaranty. iii. A small business is acquiring another small business through an asset purchase. The acquiring entity will be the Borrower. If, however, the business being acquired will continue to exist as a separate entity, the acquiring entity and the small business being acquired must be Co- Borrowers. All owners of the Applicant business, and the business being acquired, if it is a Co-Borrower, are subject to the requirements for guaranties in Section A, Ch. 5, Para. A, Guaranties. iv. An Employee Stock Ownership Plan (ESOP) or equivalent trust is purchasing a controlling interest (51% or more) in the employer small business. (Note: any transaction costs associated with the purchase of the controlling interest by the ESOP or equivalent trust, but not costs associated with setting up the trust, may be included in the use of proceeds.) (13 CFR § 120.352(b)) See Section A, Ch. 2, Para. B., Loans to Employee Stock Ownership Plans (ESOPS), for more information. v. When the purchaser is buying a business owned by an ESOP, the employees of the business (who also own the ESOP) may remain as employees of the business after the sale. vi. A small business is obtaining a loan for the sole purpose of re-lending the funds to an ESOP or equivalent trust to acquire a controlling interest (51% or more) in the small business. (Note: any transaction costs associated with making the loan to the ESOP or equivalent trust, but not the costs associated with setting up the trust, may be included in the use of proceeds.) See Section A, Ch. 2, Para. B., Loans to Employee Stock Ownership Plans (ESOPS), for more information. vii. A cooperative is purchasing a controlling interest (51% or more) in the employer small business. (Note: any transaction costs associated with the purchase of the controlling interest, but not costs associated with setting up the cooperative, may be included in the use of proceeds.) These loans may be processed under PLP or SBA Express authority. Change of Ownership Between Existing Owners (complete partner buyout): A change of ownership between existing owners may be financed under the following circumstances:
SOP 50 10 8 B.Ch2.A.2.i
i. One or more current owners is purchasing the entire interest of another current owner, resulting in 100% ownership of the business by the remaining owner(s); The small business and the individual owner(s) who is acquiring the ownership interest must be Co-Borrowers. In addition, the Note must be executed, jointly and severally, by both the Person who acquires the ownership interest(s) and the small business whose ownership interest is being acquired. If the small business denies liability for the debt based on an alleged failure of consideration under applicable state law, SBA may deny liability on its guaranty. ii. The small business is redeeming the ownership interest of an owner(s), resulting in 100% ownership of the small business by the remaining owner(s). The small business must be the Borrower, and the remaining owner(s) are subject to the requirements for guaranties in Section A, Ch. 5, Para. A, Guaranties. Partial change of ownership: 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. i. For partial changes of ownership: Both the Operating Company and the Person(s) (including any existing owner) who is acquiring or gaining any direct and/or indirect ownership interest in the Operating Company must be Co-Borrowers on the new loan, regardless of the percentage of ownership being gained. For example, a Person who is gaining 1% direct and/or indirect ownership in the Operating Company must be a Co-Borrower because their ownership is increasing, and they are benefitting from the loan proceeds.
SOP 50 10 8 B.Ch2.A.2.i.ii
ii. Multi-step partial changes of ownership are not eligible. A multi-step partial change of ownership occurs when the change of ownership is structured such that some or all of the existing owners are bringing on a new owner(s) via the formation of a new entity that will become the 100% owner of the Operating Company, and where some or all of the existing owners and the new owner(s) will be the owners of the new entity.
SOP 50 10 8 B.Ch2.A.2.i.iii
iii. 7(a) loans may not fund a partial change of ownership in an EPC for a business structured as an EPC/OC due to the regulation at 13 CFR § 120.111. However, 7(a) loans may be used to fund a partial change of ownership in the Operating Company of a business structured as an EPC/OC. iv. All remaining owners are subject to the requirements for guaranties in Section A, Ch. 5, Para. A, Guaranties, except that: a) Any selling owner (one who receives loan proceeds in exchange for selling part of their ownership) who remains as a direct or indirect owner and owns less than 20% of the business post-sale must provide a guaranty for the full loan amount for a period of 2 years after loan disbursement. b) Except for a) above, the percentages of ownership for determining who must provide a guaranty will be based on the post-sale percentage of ownership in the business. c) For ESOP transactions, there is a statutory requirement that if the seller of the employer small business remains as a partial owner, the seller must provide a full, unlimited guarantee regardless of ownership – this statutory requirement cannot be waived. v. The seller may stay on as an owner, officer, director, stockholder, Key Employee, or employee of the business. vi. When the purchaser is buying a business owned by an ESOP, the employees of the business (who also own the ESOP) may remain as employees of the business after the sale. vii. All remaining owners are subject to the requirements for guaranties in Section A, Ch. 5, Para. A, Guaranties. The percentage of ownership for this requirement is based on the post-sale percentage of direct and/or indirect ownership in the business. Note that for ESOP transactions, there is a statutory requirement that if the seller of the employer small business remains as a partial owner, the seller must provide a full, unlimited guarantee regardless of ownership – this statutory requirement cannot be waived. viii. The seller may stay on as an owner, officer, director, stockholder, Key Employee, or employee of the business. The Lender must comply with the requirements in Section A, Ch. 5, Para. B., IRS Tax Transcript/Verification of Financial Information. The Lender’s loan documentation must include: i. A current business valuation (not to include any real estate) that meets SBA requirements in Paragraph C.3.b, Real Estate Appraisal and Business Valuation Requirements, below . ii. For complete changes of ownership and complete partner buyouts: A site visit of the business being acquired. The Lender must document in its loan file the date of the site visit as well as comments. iii. An analysis as to how the change of ownership will promote the sound development and/or preserve the existence of the business. If the analysis cannot support that the change of ownership will be in the best interests of the business and its continued, successful operations, the loan is not eligible for an SBA guaranty. iv. Business, stock, and asset purchase agreements, as applicable. v. Evidence that all assets, including transferable licenses (e.g., liquor license) conveyed as a result of purchase are properly secured as collateral by Lender in accordance with the requirements in this Chapter. The “purchase price of the business” includes all assets being acquired such as real estate, machinery and equipment, and intangible assets. Intangible Assets: 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 it is supported by an independent business valuation that complies with Paragraph C.3.b, Real Estate Appraisal and Business Valuation Requirements, below.
Operationalizing SBA SOP 50 10 8, B.Ch2.A.2 — Change of Ownership
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