Change of ownership with SBA loans

March 24, 2023

by a searcher from Northwestern University - Kellogg School of Management in Longmeadow, MA, USA

We are acquiring a company by using an SBA 7a loan. After the deal closes, we'd like to bring in some outside investors and essentially do a recap where they will owen 33%.

The only information I can find online about this is some statements in 2020 saying the SBA needs approve. But it was mainly related to PPP loans, and nothing specifies why they would or would not approve. Does anyone know if the SBA does allow for changes to the cap table within the first 12 mos of an acquisition?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I concur with Lisa, any changes in the first year need SBA approval. Post the first year you are required to inform the lender. If anyone ends up with an ownership interest over 20%, they would likely be required to guarantee at that point. Another issue to keep in mind is where the funds go for any capital that comes in. The funds likely need to stay in the company. If you provide year-end tax returns as is required in the SBA loan documents, they would see a change of ownership there. Typically speaking Banks will not call an event of default for failure to provide updated financial statements because of fear the SBA will not back the guarantee on an otherwise performing loan, but it is still a best practice to stay in compliance with your lender. If you do not and something happens, it could be an issue for you down the road. Happy to have a discussion if you would like more information. You can ping me here or directly at redacted

Reply by a searcher
from Harvard University in Colorado Springs, CO, USA

First, the SBA doesn’t ask questions after closing, so what you tell them proactively is up to you. Second, they have to approve ANY change of ownership and what you’re talking about is definitely that. I guess those are in the wrong order, but you get the point. I don’t know what the potential repercussions of violating this rule are. Consult your own attorney/banker. Best of luck!

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