EP 108: New Changes from the SBA Affecting Buyers and Sellers of Businesses with Ray Drew

This week on the podcast, Ed had the opportunity to visit with "SBA Ray" otherwise known as ​Ray Drew​ of ​Fundex Solutions​! In this podcast episode, we delve into the recent changes implemented by the U.S. Small Business Administration (SBA) in its lending programs. These changes include two Procedural Notices and new Standard Operating Procedures (SOP) that have a significant impact on the 7(a) and 504 lending programs, with a particular focus on financing change of ownership opportunities.

Here are the key highlights of the SBA’s new SOP and additional guidance:

1. Equity Injection Changes:
   • Equity injection refers to new cash or assets added to a project not on the borrower’s balance sheet before.
   • For acquisitions resulting in a complete change of ownership, a minimum equity injection of 10% of the total project costs is now required. Seller debt on standby or interest-only can be considered for equity injection.
2. Employee Stock Ownership Plans (ESOPs):
   • Lenders with delegated authority can now submit ESOP transactions.
   • Loans to ESOPs for purchasing a controlling interest (at least 51%) do not require equity injection.
3. Partial Changes of Ownership:
   • SBA loans can now fund the purchase of a portion of an owner’s interest.
   • Selling owners can remain involved in the business after the partial change of ownership.
   • Rolled equity from the target company into the new company remains ineligible.
4. Additional Guaranteed Dollars:
   • Individuals can receive an extra $3.75 million in guaranteed dollars, equivalent to a $5 million 7(a) l