The Small Business Administration (SBA) has had a rule in place for decades restricting buyers from using SBA 7(a) loan proceeds to purchase a portion of a business. Rather, a buyer had to purchase 100% of the equity of the seller(s). The SBA is revising this rule – effective on May 11th, 2023 — to allow partial changes of ownership (in addition to full changes.) This will, for example, allow a buyer to purchase 80% of a business and keep the seller in for the remaining 20%. Under the old rules, a buyer had to purchase 100% of the equity for the SBA to approve the loan.
We believe this new rule will lead to more mergers and acquisitions activity as buyers will have more flexible financing options. As a result, more transaction are likely to close.