We’ve condensed the changes most relevant for Business Buyers: Personal Guarantors must provide equity from their own funds = to at least 5% of the total project cost. Example: If the total project is $1 million, personal guarantors must bring in at least $50k, and the rest could come from investors. If you are a first time business buyer, you cannot use a 5% seller stand-by note to cover half of your 10% equity any longer. If you plan to have minority owners/investors who will own below 20%, and are not providing personal guarantees, they cannot receive distributions, other than tax distributions, until your SBA loan is paid in full. A Quality of Earnings report is required on acquisitions of $3 million or more. Most buyers are already planning on a QofE, even for smaller deals. This will help banks to understand that they should be underwriting to both the Business Tax Returns and the QofE. Many of the more sophisticated banks already do this now. But this will encourage all banks to integrate the QofE into their underwriting going forward, which we view as a positive change.The downside for buyers, you may not get to pick your provider or the scope of work under the new rules, as the bank will likely control the QofE vendor and engagement processes. The 25-year loan term advantage for real-estate-heavy acquisitions is going away. When an acquisition includes both the operating business and commercial real estate, only the real estate portion may receive an amortization of up to 25 years. The business acquisition, working capital and other non-real-estate portions must be allocated a 10-year term. The financing may be structured as separate loans or as one loan using a weighted blended maturity. Previously, transactions in which real estate represented more than 51% of the financing could potentially qualify for a 25-year term across the entire loan. That advantage will no longer be available. Trust ownership now comes with additional guaranty requirements. If a trust will hold any ownership interest in the business regardless of whether that interest is below 20% the trust must guarantee the loan through its trustee. In addition, the trustor, meaning the person who contributed the assets to the trust, must personally guarantee the loan. Buyers planning to include a trust anywhere in the ownership structure should address these requirements early in the process. Seller transition periods may now extend up to 24 months. The maximum permitted seller consulting period is increasing from 12 months to 24 months. This may be especially helpful in businesses where there are licenses held by the seller, or other critical transition issues where it may be beneficial to have the seller engaged for longer. What should buyers do now? If you are evaluating an acquisition, negotiating a letter of intent or developing your capital structure, these changes should be considered before finalizing your financing plan particularly if your transaction includes outside investors, trust ownership, commercial real estate or seller financing. Reply to this email or contact the Viso Business Capital team to discuss how the new SOP may affect your acquisition. Finally, there is always some amount of interpretation or grey area involved in every new SOP, so you can expect to hear different banks seeing some things differently. As questions get raised by banks to the SBA, there is often a follow up Policy Notice from SBA that comes out to clarify those types of questions.