SBA Deal with friends and family - Do they need to be accredited?

searcher profile

February 22, 2023

by a searcher from Lousiana State University in Houston, TX, USA

Thinking about friends and family that could help fill up the capital stack for an SBA sized deal.

I've heard in the past that equity investors need to be accredited.

I want to confirm this is valid. If so, are there any work arounds to this?

I'm in my late 20s and most of my friends would not meet the accreditation standard.

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commentor profile
Reply by a lender
from California State University, Sacramento in Seattle, WA, USA
DM me for links to a recording on EQUITY structures in SBA lending that Heather Endresen and I moderated last month. Many of our self-funded search clients are brining minority investors into the structure and we understand how to work within the SBA rules.

Also keep in mind, your investors must be passive operators in the operation. Even if your individual investors are less than the 20% ownership threshold but you intend for them to be officers, title holders, key employees or are in other ways signaling more operational control, PG requirements could be triggered. You need to understand all the SBA nuances,
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Reply by an investor
from United States Naval Academy in Ashburn, VA, USA
Take note about what Laura said regarding regulatory requirements. When you sell equity in your company, you are selling a security. Bringing in non-accredited investors sets limits on how you seek out investors. Seek out an attorney who has experience in securities like these.

I also recommend you go and read the post from Steven Gluckman about friends and family investments. It has 100+ posts with some very heated takes. It can help frame your question better than just asking if they are accredited or not.
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