Why the SBA's New Partial Buyout Rules Actually Work

The Problem Nobody Wanted to Talk About

I'll admit it. When I first read the new SBA partial buyout rules, I imagined it would put the brakes on these types of transactions. But after discussing helping my clients pitch this new structure to business seller's and brokers, it's not been as ill-received as I thought it might.

Let's be honest about what could have (was) happening before the June 2025 new rule book kicks in.

Sellers were keeping 5%, or some other nominal ownership %. They'd show up for the closing, sign some papers, maybe stick around for a week or two. Then? Ghost.

Gone. Vanished. Harder to find than a old school banker on Memorial Day.

But here's the kicker - buyers needed these sellers to be there. Lender's entire thought process was that the seller's would be more "sticky" if they had some percentage. Buyer's needed their licenses. Their relationships. Their knowledge of which employee actually runs the place and which one just talks a good game.

Seller financing, owners equity, these are great and they DO typically keep a seller more invested after the sale, but they aren't fool proof.

We closed the acquisition of a towing company in 2022 where the seller financed a full 10% of the purchase. The buyer (and lender) assumed that would help with the transition period because the seller needed the business to keep running to collect their 10%. Well.. It turns out the seller really only cared about the 90% they got at closing.

The buyer would call, text, send carrier pigeons. Meanwhile, the seller's on a beach somewhere, still collecting their note payments, but completely checked out.

And what could the buyer do? Nothing. Except quit paying the note, but again.. the seller didn't care. Basically, no skin in the game.

Enter the Two-Year Guarantee Rule

Now? If you're keeping ANY ownership - even 1% - you're personally guaranteeing that entire SBA loan for two years minimum.

Suddenly, that seller who was planning to peace out after six months? They're thinking twice. Because if the business tanks, guess who's on the hook for potentially millions of dollars?

That's right. Beach vacation canceled.

We are working on multiple projects now (a Law Firm acquisiton and an Equipment rental business) where the seller's were getting close to retiring, but they aren't fully there yet. So, they like the idea of a slow exit. Now, a personal guaranty is no joke. But in these cases, they believe so strongly in the business and the buyer they're willing to put their PG behind it.

Why This Actually Protects Everyone

Here's what most people miss: This rule isn't just about protecting the SBA. It's about aligning interests.

Think about it:

• The buyer needs the seller's expertise and relationships
• The seller wants their remaining equity to be worth something
• The SBA wants the loan to get paid back

The two-year guarantee forces everyone to row in the same direction.

No more sellers keeping 15% just for the easy money. No more "consultants" who consult from their yacht. No more partial buyouts where the "partial" part disappears faster than that equity investor that had "soft committed".

If you're staying in, you're REALLY staying in.

The Hidden Benefits Nobody's Discussing

1. Better Purchase Prices

Sellers who are truly committed to staying involved? They're getting better multiples. Because buyers know they're not just buying a business - they're buying two years of guaranteed involvement.

2. Cleaner Deal Structures

No more wishy-washy "I'll help out when I can" arrangements. The guarantee forces clear expectations. You want the seller's help? They're keeping ownership. They're keeping ownership? They're guaranteeing the loan. Simple.

3. Natural Selection for Serious Sellers

The sellers who balk at the guarantee requirement? They were probably going to bail anyway or at least not be as involved as they should have been. Better to know that upfront than discover it six months post-closing when you can't get them on the phone.

How to Make the Guarantee Work FOR You

Instead of fighting these rules, here's how to use them:

Structure Meaningful Equity Retention

If a seller's guaranteeing millions in loans, 1% equity may not be enough. You may need to let them hold on to a bit more. Enough to make their risk worthwhile.

Build in Performance Incentives

That two-year guarantee period? Perfect timeline for the seller helps grow the business, and ensure they get paid.

The guarantee ensures they care about the outcome.

Use the Leverage in Negotiations

"Look, you're guaranteeing this entire loan. Let's talk about what you need to make this work - higher multiples on exit, office space, assistant, expense account, whatever keeps you engaged, but also keeps both our interests protected"

The guarantee gives you and the seller to use some other forms of negotiation that aren't allowable in most SBA transactions, or those where it's a full 100% buyout.

The New Math of Partial Buyouts

Here's how the numbers typically shake out now:

Before the New Rules:

• Seller keeps 10%
• Shows up sometimes
• Collects distributions
• Zero risk after closing

After the New Rules:

• Seller keeps 10% (actually invested to grow that 10% value)
• Guaranteed involvement for 2 years
• Structured compensation for the guarantee risk
• Vested interest in success

The Tough Love Truth

You know what? Some deals SHOULD die because of these rules.

If a seller won't guarantee a loan for a business they're keeping ownership in, what does that tell you? They don't believe in the business. They don't trust you to run it. Or they were never planning to help anyway.

Any of those scenarios? Run. Don't walk.

Making Stock Deals Work

Yes, all partial buyouts must be stock deals now. No more asset purchases. And yes, that means taking on all the historical baggage.

But you know what else it means? The seller can't claim ignorance about liabilities. They're guaranteeing the loan with full knowledge of what's in the closet. That's powerful.

Plus, stock deals preserve:

• Existing contracts and relationships
• Licenses and permits
• Credit history and vendor terms
• The legal entity's reputation

The Smart Play Going Forward

Here's my advice after starting to see these rules take shape in the real world:

1. Embrace the Guarantee

Stop seeing it as a burden. Start seeing it as a feature. You're not just buying a business - you're buying guaranteed involvement from someone with skin in the game.

2. Price it Appropriately

That guarantee has value. Real, quantifiable value. Factor it into your purchase price. A truly involved seller for two years is worth more than an absent one.

3. Document Everything

Clear expectations about the seller's role during the guarantee period. Office hours. Responsibilities. KPIs. Make the guarantee mean something beyond just financial liability.

4. Consider the Alternative

Full buyout with a 12 month consulting agreement? Sometimes that's cleaner. But if you need the seller's licenses, relationships, or expertise? The partial buyout with guarantee might be your best option.

The Bottom Line

Look, I've been doing SBA deals for nearly 15 years. I've seen a lot of rules come and go. Rules that killed good deals. Rules that made no sense.

This isn't one of them.

If this had been the first iteration of the partial buyout rule, we'd all be jumping for joy. It's just a quick reset, and it we'll all get used to it in time.

Yes, it's restrictive. Yes, it eliminates some options. Yes, your attorney is going to bill more hours explaining it.

But it also eliminates the worst kind of partial buyouts - the ones where the seller takes their money and runs, leaving the buyer holding the bag.

The sellers who are serious about helping transition their business? They'll make the guarantee work.

The buyers who really need that seller involvement? They'll structure deals that compensate for the risk.

And the deals that can't work under these rules? They probably weren't going to work anyway.

These rules aren't crazy. They're just forcing everyone to be honest about what a partial buyout really means.

And honestly? I'm a fan.

Quick thoughts on new partial buyouts:

• Think about fair compensation for the guarantee risk
• Document seller involvement expectations
• When partial buyouts make sense vs. full buyouts with consulting
• How to structure compensation around the 2-year guarantee period