SBA 7a - New Informational Notice

May 29, 2025
by a professional from Georgetown University in Maryland, USA
The SBA released an Informational Notice clarifying the changes to go into effect on June 1. The below summary is of note for SBA 7a Searchers -
1. "Search Funding" crackdown.
a. Control. The Borrower must be in Control. Lenders will likely interpret this very broadly. It will likely impact the bundle of customary minority protections investors like to have (veto rights on things like, selling the company, issuing new debt, affiliate agreements). The borrower will almost certainly need to have control over distributions and other fundamental management rights.
b. Return of Capital. The SBA is clarifying that investors are now prohibited from receiving priority repayment of their equity prior to the SBA loan being repaid. This is not 100% clear to me, but while it appears this may be implicating a preferred return, I actually think this is only referring to a Put Right, not a preferred return, but it is unclear.
2. Partial Change of Ownership (i.e. Rollover). Any partial change of ownership will require all investors (regardless of percentage) to personally guarantee. The Rollover Seller will also have to PG the entire loan for two years. As we have known, if anyone still wants to do this, it will also have to be structured as an equity acquisition.
This came from Information Notice to SOP###-###-#### released today.
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
from University of Southern California in North Palm Beach, FL, USA