Partial Buyout: A New Owner Buying the Majority
Under SOP 50 10 8.1 this is Owner Buyout (Initial Acquisition standards). Down payment: 10%, cannot be reduced. Minimum debt service coverage: 1.25 to 1. Quality of earnings report: not required. The seller after closing: may stay on.
The deal
The sole owner of a business sells a 60% stake to a new partner for $900,000 and keeps 40%. The new partner has never owned or worked in the business, and will be the largest owner afterward.
- Who is buying: An owner buyout (an owner, employee or new partner buying all or part of an owner's stake)
- Business purchase price: $900,000
- Buyer in the business the last 24 months in a row: no
- Buyer ends with 50% or more, or as the largest owner: yes
- A current owner keeps some ownership: yes
- Negative net worth at the last fiscal year end: no
- Close relationship between buyer and seller: no
What SBA requires here
SBA category
Owner Buyout (Initial Acquisition standards)
An Owner Buyout (partial change), but the buyer has not been in the business for 24 months and ends up with 50% or more (or as the largest owner), so Initial Acquisition credit standards apply. The seller keeps the right to stay on as an owner and employee.
Down payment
10%, cannot be reduced
At least 10% of the purchase price (about $90,000 on $900,000), and because Initial Acquisition standards apply, it cannot be reduced or waived.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Equity Requirements)
| What can count toward it | Half can be a seller note |
|---|---|
| Minimum debt service coverage | 1.25 to 1 |
| Business valuation | Independent valuation required |
| Quality of earnings report | Not required |
| The seller after closing | May stay on |
| Loan term | Up to 10 years |
| Who signs the loan | The business and every new owner |
| Collateral | Business assets, then personal real estate |
Each answer is explained, with its SOP 50 10 8.1 citation, in the structurer below.
What changes if one answer is different
The same new partner buying 30% instead of 60%, run through the same rules. See that scenario on its own.
| This deal | Buys 30% | |
|---|---|---|
| SBA category | Owner Buyout (Initial Acquisition standards) | Owner Buyout |
| Down payment | 10%, cannot be reduced | 10%, lender may reduce or waive |
| Minimum debt service coverage | 1.25 to 1 | 1.25 to 1 |
| Business valuation | Independent valuation required | Independent valuation required |
| Quality of earnings report | Not required | Not required |
| The seller after closing | May stay on | May stay on |
| Loan term | Up to 10 years | Up to 10 years |
| Who signs the loan | The business and every new owner | The business and every new owner |
Change the answers
The structurer below is loaded with this deal. Change any answer to see how the SBA rules move. Open the full change of ownership calculator.
SBA category
Owner Buyout (Initial Acquisition standards)
An Owner Buyout (partial change), but the buyer has not been in the business for 24 months and ends up with 50% or more (or as the largest owner), so Initial Acquisition credit standards apply. The seller keeps the right to stay on as an owner and employee.
- Down payment
- 10%, cannot be reduced
- What can count toward it
- Half can be a seller note
- Minimum debt service coverage
- 1.25 to 1
- Business valuation
- Independent valuation required
- Quality of earnings report
- Not required
- The seller after closing
- May stay on
- Loan term
- Up to 10 years
- Who signs the loan
- The business and every new owner
- Collateral
- Business assets, then personal real estate
At least 10% of the purchase price (about $90,000 on $900,000), and because Initial Acquisition standards apply, it cannot be reduced or waived.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Equity Requirements)
Cash that is not borrowed (including a gift) counts in full. A seller note or other debt on full standby (no principal or interest for the life of the SBA loan) and minority investors (under 20%, no control) can together cover no more than half.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Source of Equity Injections)
The business has to cover its debt payments 1.25 times, using the last fiscal year end or the average of the last two.
SOP 50 10 8.1, Appendix 15, Para. C.2 (Lender's Credit Analysis)
An independent valuation by an accredited Qualified Source, prepared for the lender (not for the buyer or seller). If the price is above the valuation, the difference has to be made up with equity.
SOP 50 10 8.1, Appendix 15, Para. C.1 (Business Valuation Requirements)
Required only at a business purchase price of $3 million or more.
SOP 50 10 8.1, Appendix 15, Para. C.1 (Quality of Earnings)
In a partial change the seller can stay as an owner, officer or employee. A selling owner who keeps less than 20% must personally guarantee the full loan for at least two years.
SOP 50 10 8.1, Appendix 15, Para. A (Change of Ownership Requirements)
A loan that finances a change of ownership cannot amortize over more than 10 years, and cannot have a balloon. Only owner-occupied real estate bought in the same deal can go longer.
SOP 50 10 8.1, Appendix 15 (Loan Maturities)
In a partial change, the operating company and every new direct or indirect owner are Co-Borrowers, whatever percentage they buy (even 1%). At least one original owner stays and personally guarantees the loan.
SOP 50 10 8.1, Appendix 15 (Types of Changes of Ownership)
The lender takes a lien on everything bought (vehicles have their own rule) and on the business's fixed assets. If they do not cover the loan, it must take available equity in personal real estate (home, investment property and other commercial property) solely owned by each Co-Borrower, owner of 20% or more and guarantor. Property with less than 25% equity is not required, and the lien can be limited to the shortfall. A selling owner who keeps less than 20% and gives the two-year guaranty does not have to pledge a home.
SOP 50 10 8.1, Appendix 15 (Collateral)
Watch for
- Owner Buyout rules only apply to a buyer who has been in the business for 24 months, or who ends up with less than 50% and is not the largest owner. Otherwise the deal is underwritten as an Initial Acquisition: the 10% cannot be waived and the $3M quality of earnings rule applies.
- Seller earnouts are prohibited. A working capital true-up at closing and rebates from the seller to the buyer are allowed.
SBA minimums from SOP 50 10 8.1 (effective October 1, 2026). Lenders can ask for more. General information, not a loan approval or legal advice. More SBA rules, answered.
Questions
What SBA change of ownership category is a partial buyout of a majority stake?
Owner Buyout (Initial Acquisition standards). An Owner Buyout (partial change), but the buyer has not been in the business for 24 months and ends up with 50% or more (or as the largest owner), so Initial Acquisition credit standards apply. The seller keeps the right to stay on as an owner and employee.
How much down payment does a partial buyout of a majority stake need?
10%, cannot be reduced. At least 10% of the purchase price (about $90,000 on $900,000), and because Initial Acquisition standards apply, it cannot be reduced or waived.
What debt service coverage does the lender need for a partial buyout of a majority stake?
1.25 to 1. The business has to cover its debt payments 1.25 times, using the last fiscal year end or the average of the last two.
Does a partial buyout of a majority stake need a quality of earnings report?
Not required. Required only at a business purchase price of $3 million or more.
Can the seller stay on after a partial buyout of a majority stake?
May stay on. In a partial change the seller can stay as an owner, officer or employee. A selling owner who keeps less than 20% must personally guarantee the full loan for at least two years.
SBA minimums from SOP 50 10 8.1 (effective October 1, 2026), Appendix 15. Lenders can ask for more. General information, not a loan approval or legal advice.