Updates to the SBA Loan Programs as of 12/6/24

I wanted to take a moment and update everyone on the SBA Procedural Notice that came out on December 6th, ###-###-#### This notice provides some key updates to the SBA loan programs that might impact searchers going forward. I am going to highlight the key changes below:

1) In 2023 the SBA started allowing partial changes of ownership under the SBA 7A loan program, but in doing so required the buyers to purchase the existing stock or membership interest of the existing business entity. The SBA is now allowing the existing owners and new owners to form a new entity for the acquisition for the business, in essence allowing an asset purchase to take place with a partial change of ownership. This is a huge change to the structure of partial business acquisitions going forward. Both the new operating company and the new owners must be co-borrowers on the loan. The loan proceeds may not exceed the percentage of the valuation of the business being acquired by the new owners. So if the new owners are acquiring 50% of the business, then the SBA loan cannot exceed 50% of the valuation for that business.

2) Under the revised SBA rules in 2023, the SBA stated that if there is a stock purchase of a business that owns both real estate and business assets that the maximum term for the debt could not be more than 10 years. This rule required the real estate in stock transactions to be purchased in a separate loan, and did not allow the amortization to be blended or increased to 25-years for transactions where 51% or more of the stock purchase was made up of the real estate value. The SBA has corrected the rule related to stock purchases, and you can now include the real estate in the same loan with a 25-year amortization if the real estate is 51% or more of the purchase price or with a blended amortization if the real estate purchase is less than 50% of the purchase price. This revolves some complication that had been in place for stock purchases when real estate is owned directly by the selling entity, and will allow for some longer amortizations on business acquisition debt as well as lower closing costs (one loan versus two loans in some cases).

3) The SBA updated its language related to the loan term with the change of ownership of a business to be based on the use of proceeds for the SBA 7A loan versus the total project cost. In addition, in a stock purchase, the loan maturity may be based on the underlying assets financed by the SBA supported by a business valuation / appraisal. This allows seller notes used for the business acquisition to be excluded from the calculation for maturity. So if you are funding a business acquisition for $3 million with a $1 million seller note and a $1.2 million in real estate value, since the real estate is now 60% of the $2 million being funded by the SBA, you can qualify for a 25-year amortization on the entire debt. In addition, this will allow for longer blended amortizations since the portion of the business purchase being covered by the seller note will not be included in the calculation of the cost for the blended amortization when real estate is involved in the transaction.

4) If you are purchasing a division of a business, the SBA is no longer requiring that the lender verify tax transcripts for that business. The SBA is now allowing other forms of verification to be used from third-party sources in lieu of tan transcript data.

5) The SBA has revised the reporting rules for non-owner spouses on the personal financial statement. Non-owner spouses are no longer required to report their personal assets on the personal financial statement. Also, non-owner spouses are only required to sign the personal financial statement if there are co-owned assets reporting on the personal financial statement.

5) SBA is now allowing the use of C-Pace financing with SBA 7A and SBA 504 loans, and is not requiring that C-Pace financing to be included in the calculation to determine whether the loan is fully secured. C-Pace financing is used for commercial properties with improvements based on clean energy initiatives.

6) The SBA is no longer requiring a lender to place a lien on business vehicles valued at less than $10,000. This does not mean the lender may not want to still do it, but it is no longer required by the SBA. This will help reduce closing costs and hassles for businesses with dated vehicles that provide little value to the transaction and should help simplify the closing process.

7) SBA is now allowing the refinance of merchant cash advances, factoring agreements, and non-amortizing credit facilities without the requirement the refinance must meet the 10% savings requirement for the lender. This will make it much easier for existing businesses to refinance this debt into SBA 7A loans in the future and save on high monthly payment costs.

There are a few other minor language and rules changes, but the above changes are the main changes put in place by the SBA that will impact those looking to acquire a business via SBA financing. Overall I find these changes to all be positive, and I did not see anything that would be a negative to the community. If you have additional questions or would like to discuss SBA financing or any other type of business financing, I am available at any time here or directly at redacted