A recent Forbes article highlights a critical new rule in the SBA 7(a) loan program that provides greater flexibility in structuring small business acquisitions. For the first time, equity rollovers can be used in SBA-financed asset purchases.

A prior rule change in 2023 allowed for sellers to roll-over equity, but it conditioned such rollover on the deal being structured as a stock purchase.

Here’s why this change matters:

✅ Equity Rollover Flexibility: The new rule allows a portion of the seller’s equity to remain in the business after the acquisition. This is significant because it now applies to asset purchases, giving buyers the ability to secure the business's assets while avoiding legacy liabilities tied to the prior business entity (see more on this in my next point).

✅ Safer Transactions: Structuring the deal as an asset purchase allows buyers to acquire only the business’s operations, equipment, and goodwill, without taking on the risks commonly associated with a stock purchase.

✅ Sellers Committed to Future Success: For sellers, the option to retain a stake through equity rollovers makes the deal more appealing and ensures continuity, as they share in the future success of the business.

Key Considerations:

1️⃣ Leverage Asset Purchases: Pair equity rollovers with asset purchases to minimize risk and maximize SBA financing benefits.

2️⃣ Mitigate Liabilities: While asset purchases shield buyers from legacy liabilities, due diligence remains essential to uncover operational or financial risks that may survive.

3️⃣ Legal and Tax Implications: Consult with experienced attorneys and tax advisors to navigate the complexities of equity rollovers.