HVAC Deal - SBA / Licensing

searcher profile

July 13, 2023

by a searcher from Harvard University - Harvard Business School in Boston, MA, USA

LOOKING FOR CREATIVE SUGGESTIONS.

I am currently under LOI on a HVAC Deal in NJ and beginning diligence this week.

I just received a call from a banker stating that the SBA is "likely rolling back their previous announcement that previous owners are able to roll equity < 20% and not have to sign a PG". NJ requires a HVACR license to operate and the license holder has to be at least a 1% equity holder. The deal was going to be a stock deal where the owner retained 1% equity.

Looking for suggestions on whether:
1) The SBA is really changing their recent guidance on equity rolls
2) How to structure / fund / license this deal

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
The IRS Chat may state that, but I am hearing conflicting information from my sourcing stating if you own less than 20% in a partial sale you do not have to guarantee. If you actually look at the new SOP under Change of Ownership (Page 98 of the new SOP), when referencing "Guaranties" it specifically states "however, the percentages of ownership for this requirement will be based on the post-sale percentage of ownership in the business." This appears to override the other guaranty rules.

I think the confusion is some people have asked the question about what is the priority (the old rule or the new one) and everyone is awaiting final clarification from the SBA. However, in my opinion, there is no reason the SBA would have put this language in the new rules had the SBA not intended to have those who owns less than 20% not be required to guarantee post close on a partial business acquisition. I could end up being wrong, but again I am hearing it is not changing from my sources, and there is clarification that should come out.
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Reply by an investor
from University of Pennsylvania in New York, NY, USA
^redacted‌ provided an excellent explanation of this on her Twitter feed. Unfortunately it does appear that the seller would have to provide a personal guarantee even if under 20%.
https://twitter.com/endresenheather/status/1679238991995105280?s=46&amp;t=wSIvQfdpkj0M8GuwnZoRbA
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