SBA 7(a) loan program - Great New Changes announced today, May 9, 2023
May 10, 2023
by a lender from Trinity College Connecticut in Boston, MA, USA
Great new changes just announced today for the SBA 7(a) Loan Program:
1) Partial Sales of Businesses can now be done - previously the SBA required 100% buyouts. The Seller will not need to guaranty the loan if their post-sale ownership is < 20%.
2) Sellers will now be able to stay involved with the business indefinitely as: An owner, officer, director, stockholder, or employee of the business. Previously a Seller could only stay involved for a max of 12 months.
3) New terms for Seller Notes to be considered an “Equity Injection” – which qualifies as part of the required down payment (so less cash down from the Buyer): a) Only 24 months required on a Seller “Standby” Note - no principal or interest payments allowed for 24 months, but principal & interest payments can start in month 25. b) Previously the Standby period had been for the full period the SBA loan was outstanding.
4) Changes to Affiliation rules for Buyers: Previously if a Buyer owned 20% or more of another business, the lender was required to get tax returns and financials for that business as part of the loan underwriting. This has been changed so that this is only required if a Buyer owns 50% or more of another business.
Note: These changes won’t go into effect until 8/1/2023 and there could be additional changes made prior to that date.
That said, SBA 7(a) loans are now an even better option for the purchase of small businesses, with low down payments, 10-year term with no prepayment penalties, and a wide range of uses – business acquisition, partner buyout, working capital/expansion, business occupied commercial real estate, etc.
If you have any questions or would like to discuss SBA 7(a) loans in more detail, contact me at###-###-#### or redacted
from Northwestern University in Atlanta, GA, USA
1. 70% SBA 7(a) senior debt
2. 10% seller note on full standby
3. 10% seller rolled equity
4. 10% searcher equity
And, do the value of #2 and #3 need to be less than 20% in order for the seller to avoid personal guarantee? or is it just #3 that needs to be below 20%?
from Pennsylvania State University in Philadelphia, PA, USA
Example Deal:
- Purchase Price $1M
- Seller equity 19% (to be under required personal guarantee)
- Required buyer down payment 1% (to meet the 20% SBA equity injection requirement)
In other words, we could now close on acquisitions with only 1% of the purchase price without needing the seller to do a PG?