Big New SBA Loan Changes - New Guidelines Released

The SBA just updated its SOP for 7(a) loans, with some rather impactful new changes. 1. *IF* a seller is rolling equity, then both the seller AND any minority investors must PG the entire deal. Yes, even if minority investors are under the 20% threshold. This caused a stir, but from my understanding, the real effect will be that sellers will no longer roll any equity. Doubly true if a deal involves minority investors (none will PG the loan). From my understanding, as long as a seller is not rolling equity, then everything is the same as it's always been... investors stay under 20% ownership and they are clear. 2. Seller notes now have to be on FULL standby to be counted as equity in the deal. Currently, as long as the seller note was on a 2-year standby, it could count as part of the equity injection. This is no longer the case. Now it needs to be on full-standby, i.e. no payments on principal or interest for the full length of the SBA loan. What this means: It'll kill seller notes being used as equity. They'll still be used to keep seller skin in the game, but not for equity injections. So, deals will require more actual cash equity injections from buyers, or more cash from investors like us if the buyer doesn't have it available. 3. CPA reviewed financials *may* take the place of tax returns in some cases. Sometimes the tax returns don't represent the underlying business. This should help solve that issue. Good for corporate spinoffs (and maybe holdco's?). 4. Partial buy-ins must be structured as a stock deal, not an asset deal. I don't quite understand the "why" behind this, but would love someone to chime in. Changes go into effect June 1st.