CHANGES TO SBA 7a EQUITY INJECTION REQUIREMENT: GREAT NEWS FOR ACQUISITIONS; 10% vs. 25% EQUITY INJECTION

7(a) Loan Program- Equity Injection Requirement (pg. 174)

Change of Ownership

Minimum equity injection requirements for certain Applicants or loans:

(i) Resulting in a new owner (complete change of ownership): SBA considers an equity injection of at least 10 percent of the total project costs to be necessary for such change of ownership transactions.  Seller debt may be not be considered as part of the equity injection unless it is of full standby for the life of the SBA loan and it does not exceed half of the required injection {emphasis added}:

(ii) Change of ownership between existing owners ("partner buyouts"): the pro-forma equity position after the change of ownership must be at least 10 percent if the total assets.  Otherwise, the remaining owner(s)  must provide an additional equity injection that will result in at least a 10 percent net worth (maximum pro forma debt-to-worth ration of 9:1).

You can still reference the previous SBAvalue article regarding equity requirements in a partner buyouts, but the 25% will be changed to 10% effective January 1, 2018.

Of importance is the new version of the SOP which removed the requirement for 25% equity injection when intangible assets exceed $500,000 in change of ownership loans in order to rocess under a Lender's delgated authority.  Delegated Lenders may process any change of ownership under their delegated authority, and must comply with the minimum equity requirment as stated above.