Over the past few years, the Small Business Administration (SBA) has significantly changed its 7(a) loan program. One such change, which may surprise some business owners, is that buyers can now purchase less than 100% of a business with an SBA 7(a) guaranteed loan.

Previously, buyers had to purchase 100% of the target business's assets, stock, or membership units

to qualify for an SBA 7(a) loan. This change was introduced to accommodate the growing trend of partial business sales, where buyers acquire only a portion of a business rather than purchasing the entire entity.

By allowing buyers to purchase less than 100% of a business, the SBA hopes to provide more flexibility to small business owners looking to sell their businesses or retire while helping buyers who may need more resources

purchase the entire entity. While this change may seem small on the surface, it has the potential to significantly impact small businesses and their ability to access funding through the SBA 7(a) loan program.

Here’s what you need to know about this change and how it could affect your business. First and foremost, it’s important to understand that the new guideline change does not mean buyers can purchase any percentage of a business they choose. Instead, the SBA has set a minimum ownership threshold of 50%, meaning buyers must acquire at least 50% of the business to qualify for an SBA 7(a) loan.

Additionally, the SBA has set some other stipulations around partial business sales. For example, buyers must have a clear understanding of the value of the business. They must demonstrate that they have the financial resources to acquire the portion of the business they are interested in. This means buyers will still need to provide a down payment and have above-average credit to qualify for an SBA 7(a) loan. Another consideration is that partial business sales can present additional challenges for buyers and sellers. For example, if a buyer is only purchasing a portion of a business, there may be questions about how the business will be managed going forward. Despite these challenges, the ability to purchase between 50% and 100% of a business with an SBA 7(a) loan could provide small businesses with more opportunities to access the funding they need to become business owners. By allowing buyers to purchase only a portion of a business, more businesses may find qualified buyers who can provide the resources they need to continue operating or sell their business at a fair price.

The maximum SBA loan guarantee amount remains at $5,000,000, which means that at any given time, an individual with commercial business acquisition loan(s) can borrow no more than five million dollars with an SBA guarantee in aggregate.

In conclusion, the Small Business Administration’s new guideline change allowing buyers to purchase 50% to 100% of a business with an SBA 7(a) loan is an important development for small businesses and potential buyers. While this change does come with some stipulations, it provides more flexibility for small business owners looking to sell their businesses or retire, helping buyers who may not have the resources to purchase the entire entity. Whether you’re a small business owner or a potential buyer, it’s important to keep this change in mind when considering your options for financing or selling a business.