Update, September 2026: This post covers the SBA SOP changes announced in spring 2025. SBA SOP 50 10 8.1 takes effect October 1, 2026 and moves business acquisitions into their own appendix with new equity, QofE, and DSCR rules. Read the full breakdown here. The requirements below still apply.
The SBA has released a significant update to its Standard Operating Procedures (SOP) that impacts equity requirements, seller note structures, and eligibility criteria. Here’s what SMBootcamp alumni and other acquisition entrepreneurs need to know:
1. Minimum 10% Equity Requirement & Changes to Standby Seller Notes
Summary: A minimum 10% cash equity injection is now explicitly required for complete changes of ownership, and standby seller notes only qualify as equity if on full standby for the loan’s 10-year term.
In-Depth:
- This change eliminates flexibility around using 2-year or partial standby seller notes to bridge valuation gaps.
- Model your DSCR calculations assuming no note payments are excluded by the lender.
- Plan to provide the full 10% equity in cash, though you can raise investor equity to cover this injection.
2. Equity Rollovers are Basically Dead
Summary: Sellers retaining any equity must now personally guarantee the SBA loan for two years and be listed as co-borrowers, and new investors must also co-borrow—making partial buyouts impractical.
In-Depth:
- Most deals will need to be structured as 100% buyouts, as sellers and investors are unlikely to agree to co-borrower status.
- Licensing continuity via seller equity is now problematic; consider alternative license-holder arrangements.
3. Equity Investors Under 20% Do Not Automatically Provide Personal Guarantees
Summary: In 100% buyout scenarios, minority investors (<20%) aren’t required to personally guarantee the loan—guarantee rules apply only to partial ownership changes.
In-Depth:
- Minority investors can hold positions without personal guarantee implications, provided the transaction is a full buyout.
4. Seller Financial Verification Flexibility for Carve-Outs
Summary: For carve-out transactions, lenders can now accept CPA-reviewed statements, sales tax records, and other documentation instead of tax returns.
In-Depth:
- This benefits acquisition entrepreneurs targeting business segments or e-commerce carve-outs.
- Don’t assume tax returns are optional for most deal types without explicit lender confirmation.
5. Franchise Deals Simplified, But Active Oversight Required
Summary: If the franchise is SBA-approved, lenders skip FDD reviews—but you must demonstrate active operational control to avoid being classified as passive ownership.
In-Depth:
- Active oversight includes approving budgets, controlling accounts, and managing staff.
6. CBD and Hemp-Related Businesses Clarified as Potentially Eligible
Summary: Hemp businesses (<0.3% THC) are explicitly eligible; consumer-facing CBD products remain risky without FDA compliance.
In-Depth:
- Marijuana-related businesses are still prohibited, but compliant hemp deals may qualify with strict documentation.
7. Stricter Ownership Rules for Non-U.S. Citizens
Summary: Only businesses fully owned by U.S. Citizens, green card holders, or U.S. Nationals qualify; any recent non-eligible ownership can disqualify the loan.
In-Depth:
- Conduct early diligence on ownership history and documentation for international parties.
Recommended Next Steps
- Reevaluate Capital Structures: Plan for 10% cash equity injections and don’t rely on short-term standby notes.
- Address Licensing Early: Identify license holders upfront and set seller expectations post-closing.
- Engage SMB Loan Support Early: Validate deal structures against the new SOP before finalizing LOIs.
