SBA released some updates and they will help close a whole bunch of new deals. Lets talk about
Reducing Ownership Interest: SBA’s intention is that for an SBA loan to finance a complete change of ownership, the seller, who no longer has any ownership in the business, is not required to provide a guaranty. Additionally, for 7(a) loans for partial changes of ownership, SBA will measure percentage of ownership post-sale for the purpose of determining who is required to provide a guaranty.
This one is interesting: Substitution of Personal and/or Corporate Guaranty Liability: The SOP Added language that permits substitution of personal and/or corporate guaranty liability. SBA allows third-party individuals or entities to assume the liability of a personal or corporate guaranty, as applicable, for the guaranty of the individuals and/or entities that would otherwise be required to make a personal or corporate guaranty for an SBA loan. If the personal or corporate guaranty liability is assumed by a separate entity or individual, the substitute guarantor must have a similar or greater value, and the personal/corporate guaranty liability agreement or transfer agreement must be submitted to the SBA Lender as part of the complete loan package. If a substitute guarantor will be used, SBA Lender must identify in the E-Tran terms and conditions both the substituted guarantor and the individual or corporate entity being substituted, and if applicable, the personal/corporate guaranty liability agreement or transfer agreement must be submitted to the SBA Lender as part of the complete loan package.
This is a big one: Loan maturities – For all 7(a) loan: For loans to acquire equipment, fixtures, or furniture, maturity may be up to 15 years if the IRS asset class useful life supports the term. Loans for leasehold improvements (except for leasehold interests in land) may be up to 10 years, plus an additional period reasonably necessary to complete the leasehold improvements. For mixed-purpose loans, when loan proceeds are used for multiple purposes (land and building, working capital, machinery & equipment, or the refinancing of any of these purposes), the maturity may be a blended maturity or, if 51% or more of the use of proceeds are for real estate, the maximum maturity may be up to 25 years.
Changes of ownership - For 7(a): Loan maturity for a complete change of ownership may be up to 25 years only when the purchase price includes the commercial real estate from which the Applicant business operates (i.e., is not investment or personal real estate) and when the value of the commercial real estate is 51% or more of the purchase price. Otherwise, the maximum maturity is 10 years. The maximum loan maturity for a change of ownership between existing owners and for partial changes of ownership is 10 years. A complete partner buyout or a partial change of ownership is by its nature a transaction based on the redemption or sale of stock for equity in the business; therefore, the loan maturity is limited to a maximum of 10 years. Seller earnouts are prohibited; however, buyer rebates based on business performance are allowed because this is a benefit to the Borrower. If the Borrower receives funds based on the rebate, it should first be applied to pay down the 7(a) loan to a point that will not trigger a subsidy recoupment fee, and any remaining funds may be used for business purposes. The maximum 7(a) loan uses of proceeds for the change of ownership is capped at the business valuation amount. When the business valuation is lower than the sales agreement, the shortfall may be financed with a non-guaranteed loan as long as it is subordinate to the 7(a) loan. Clarified when a seller may remain as an officer, director, stockholder, or employee of the business.
Expansion rule - no equity needed: Added a clarification that when an existing business starts or acquires a business that is in the same 6-digit NAICS code with identical ownership and in the same geographic area as the acquiring entity and they are co-borrowers, SBA considers this to be a business expansion and not a new business. Northwest Bank Angel Rosario###-###-#### , --@----.com
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