The new SBA SOP prohibits sellers from remaining on payroll, so whether you can acquire a licensed trades business now hinges on state rules for who may hold the qualifying license. redactedBuying a Licensed Trades Business under the new SOP Lately the hottest question landing in my inbox has been: “Did the new SBA rules just kill trades / license deals where the buyer doesn’t already hold the required state license (think HVAC, electrical, plumbing, etc.)?” In short, the answer is no: an SBA-backed purchase of a trades business is not automatically off-limits under the new SOP. But it could be a lot harder now. Here’s why Under the new SOP, sellers can no longer remain as W2 employees. They are strictly limited to 1099 consultants for a max of 12 months. The exact language from the SBA’s SOP is: redactedYou might say, “Wait a minute. I thought you could keep a seller as an employee if they retained equity in the business?” Or said another way, doesn’t rollover equity allow you to keep a seller as a W2 employee? The answer is yes – you can keep a seller as a W2 employee if you structure a transaction as a partial change of ownership, where the seller retains a certain amount of equity after closing. Many refer to this in SBA transactions as “rollover equity.” But if sellers retain even a tiny slice of equity (even 1%), the new SOP says the seller must personally guarantee (PG) your SBA loan for 2 years. Most sellers simply won’t agree to this. That functionally kills the solutions buyers have relied on the last few years with licensed trades businesses (primarily, the seller retaining equity and continuing to license the business post-closing). Today, given the new SOP, whether or not your deal will work depends on two key things: 1. Is your seller the only license-holder available? 2. Does your state licensing board allow someone to qualify your business under a 1099 independent contractor arrangement, or does the qualifier need to be a W2 employee or an equity owner? State-by-State Licensing Breakdown Below is a quick breakdown on how different states handle licensing requirements: redactedredactedredactedredacted