On July 1, 2013, the Small Business Association (SBA) released a revision to SOP 50 10 5(E) that revised and clarified the SBA’s requirements for financing change-of-ownership transactions with SBA-guaranteed loans. Prior to this revision, the SBA had restricted SBA financing for change-of-ownership transactions that were structured as stock purchases where the stock (or ownership interest) of the selling shareholder(s) was being purchased by an individual or individuals. The new rules lift this restriction and greatly simplify the requirements governing change-of-ownership transactions for SBA lenders.
The new guidelines allow for a change of ownership to be achieved through an asset purchase, a stock purchase, or a stock redemption. The revised language of the SOP provides for two basic scenarios in which a change of ownership can occur: (1) a change of ownership between existing owners and (2) a change of ownership that results in a “new” owner.
A change of ownership between existing owners may be accomplished either through a stock purchase or a stock redemption. Whether structured as a purchase or redemption, the remaining owners must own 100% of the stock at the completion of the transaction. If structured as a purchase, the individuals acquiring the stock and the company whose stock is being acquired must be co-borrowers on the loan. If structured as a redemption, the business whose stock is being redeemed must be the borrower and the remaining owners may be either co-borrowers or guarantors.
A change of ownership resulting in a new owner may be structured as either a stock purchase or an asset purchase. If structured as a stock purchase, 100% of the stock may be purchased either by an entity or an individual who is not an existing owner of the business. If the purchaser of the stock is an individual, then the individual and the target must be co-borrowers on the loan. If the purchaser of the stock is an entity or if the transaction is structured as an asset purchase, then the business being acquired may be a co-borrower on the loan.