The SBA’s new SOP changes mandate a 10% cash equity injection, restrict rollover and seller-note flexibility, and clarify lender verification and ownership requirements, significantly impacting deal structures for business buyers. redacted1. Minimum 10% Equity Requirement & Changes to Standby Seller Notes Summary: A minimum 10% cash equity injection is now explicitly required for complete changes of ownership, and standby seller notes only qualify as equity if on full standby for the loan’s 10-year term. In-Depth: • This change eliminates flexibility around using 2-year or partial standby seller notes to bridge valuation gaps. • Model your DSCR calculations assuming no note payments are excluded by the lender. • Plan to provide the full 10% equity in cash, though you can raise investor equity to cover this injection. 2. Equity Rollovers are Basically Dead Summary: Sellers retaining any equity must now personally guarantee the SBA loan for two years and be listed as co-borrowers, and new investors must also co-borrow—making partial buyouts impractical. In-Depth: • Most deals will need to be structured as 100% buyouts, as sellers and investors are unlikely to agree to co-borrower status. • Licensing continuity via seller equity is now problematic; consider alternative license-holder arrangements. 3. Equity Investors Under 20% Do Not Automatically Provide Personal Guarantees Summary: In 100% buyout scenarios, minority investors (<20%) aren’t required to personally guarantee the loan—guarantee rules apply only to partial ownership changes. In-Depth: • Minority investors can hold positions without personal guarantee implications, provided the transaction is a full buyout. 4. Seller Financial Verification Flexibility for Carve-Outs Summary: For carve-out transactions, lenders can now accept CPA-reviewed statements, sales tax records, and other documentation instead of tax returns. In-Depth: • This benefits acquisition entrepreneurs targeting business segments or e-commerce carve-outs. • Don’t assume tax returns are optional for most deal types without explicit lender confirmation. 5. Franchise Deals Simplified, But Active Oversight Required Summary: If the franchise is SBA-approved, lenders skip FDD reviews—but you must demonstrate active operational control to avoid being classified as passive ownership. In-Depth: • Active oversight includes approving budgets, controlling accounts, and managing staff. 6. CBD and Hemp-Related Businesses Clarified as Potentially Eligible Summary: Hemp businesses (<0.3% THC) are explicitly eligible; consumer-facing CBD products remain risky without FDA compliance. In-Depth: • Marijuana-related businesses are still prohibited, but compliant hemp deals may qualify with strict documentation. 7. Stricter Ownership Rules for Non-U.S. Citizens Summary: Only businesses fully owned by U.S. Citizens, green card holders, or U.S. Nationals qualify; any recent non-eligible ownership can disqualify the loan. In-Depth: • Conduct early diligence on ownership history and documentation for international parties. Recommended Next Steps • Reevaluate Capital Structures: Plan for 10% cash equity injections and don’t rely on short-term standby notes. • Address Licensing Early: Identify license holders upfront and set seller expectations post-closing. • Engage SMB Loan Support Early: Validate deal structures against the new SOP before finalizing LOIs. redacted