Anyone with experience using SBA to acquire minority interest?

February 28, 2024

by a searcher from Columbia University in New York, NY, USA

Looking into the rules and regulations around using an SBA loan to acquire a minority interest in a small business.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

We have funded a number of these deals through our lending partners. With the new SBA guidelines, anyone who owns 20% or more of the company post close must sign a personal guarantee. This includes any of the previous owners. Those owners are also exposed to the additional collateral requirements the SBA has for guarantors should the transaction not have sufficient collateral to support the debt based on the SBA guidelines. If none of the sellers will have greater than a 20% ownership post close, then doing a partial buy-out makes a lot more sense. If you would like to talk through your specific situation in more detail we would be happy to do so. You can reach me at redacted

Reply by a searcher
from Harvard University in San Francisco, CA, USA

Hi ^redacted‌ - I don't have experience in executing such a deal, but I did explore this. The net of it is that it's possible as long as all the major shareholders (including Sellers) sign a personal guarantee for the SBA and provide their personal real estate as collateral. The SBA loan is on the company and guaranteed by all the shareholders, not just the Buyers. As you can see this is the biggest impediment for such a transaction.

Please reconfirm this with an expert. I have only dabbled in the situation.

Thanks for the tag, ^

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