SBA Lending Guidlines Change

May 11, 2023

by a searcher in New York, NY, USA

Hey Everyone,

I'm hearing chatter that the SBA has changed lending guidelines such that it is now possible to buy part, not all, of the target business. e.g. it should now be possible to keep the seller in the deal, while purchasing a majority of the business, and controlling the full cashflow, and therefore DSCRs should be able to be dramatically higher.

Has anyone else heard anything around this change? Or where I can find the specific changed section in question? I just came across this ~10 minutes ago, so figured I'd toss it out here for discussion/awareness.

Thanks all.

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Reply by a lender
from University of San Diego in Clearwater, FL, USA

Fresh off the press! The SBA released a change to their guidelines today. The big news is that seller equity rolls are now allowed! This is huge! • Sellers can stay longer than a year if they retain any equity, and can be “key employees” • Sellers will not have to personally guarantee the buyer’s loan if they retain less than 20% equity. They will if they retainer greater than 20% • The 10% equity injection (down payment) can be satisfied by the company itself if seller rolls equity and the balance sheet is strong enough to pass a 9:1 "debt to worth" ratio with its tangible assets, so 0% down is possible • Seller notes can be applied as equity injection into a deal if they are on either a two year standby (not 10 as before) or just interest only payments are required on the note o A minimum 5% buyer cash injection will still be required

Reply by a lender
from California State University, Sacramento in Seattle, WA, USA

Well stated by many on this thread already. Stay tuned! Lenders will be ready to talk about what this all means over the next month. If you have deals under review that could benefit from some of the changes, talk with your lenders of choice now so you can be ready but there is not a full understanding of the benefits and the consequences just yet. I’m sure there will be plenty of special sessions coming out over the next couple of months. I’ve already got a session planned when I have something concrete to share. 🤣

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