SBA rules · SOP 50 10 8.1

Can an SBA loan pay for goodwill?

Yes under the 7(a) Loan Program, but no under the 504 Loan Program.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

7(a) Program: A 7(a) loan may be used to finance a change of ownership that includes intangible assets (including goodwill, customer lists, patents, trademarks, and agreements not to compete) as long as the required financial due diligence requirements are met.
7(a) Maturity: The loan term for financing intangible assets, including goodwill, must not exceed 10 years.
504 Program: A 504 Project finances only eligible long-term fixed assets, meaning goodwill and other intangible assets cannot be financed with 504 loan proceeds or Third Party Loan proceeds and must be funded separately, such as through a 7(a) loan.
EPC/OC Structure: An Eligible Passive Company may not use loan proceeds to acquire intangible assets, but when the EPC and Operating Company are Co-Borrowers on a 7(a) loan, proceeds may be used to purchase intangible assets for the Operating Company's use.

The source

What the SOP says

“A 7(a) loan may be used to finance a change of ownership that includes intangible assets (including, but not limited to, goodwill, client/customer lists, patents, copyrights, trademarks, intellectual property, and agreements not to compete) as long as the financial due diligence requirements set forth in Paragraph C.1 of this Appendix are met.

SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership > Intangible Assets (lines 5046-5047)✓ Verified

“The 504 Project finances only the costs associated with eligible long-term fixed assets; the acquisition of any other assets such as receivables or goodwill is not an eligible use of 504 loan proceeds or Third Party Loan proceeds and must be financed by other means, which may include a 7(a) loan;

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Change of Ownership (lines 3342-3353)✓ Verified

“Working capital or inventory loans and the financing of intangible assets (including goodwill) must not exceed 10 years.

SOP 50 10 8.1, Appendix 17: 7(a) Loan Maturity Requirements > General Requirements (lines 5377-5383)✓ Verified

“With the exception of a change of ownership between existing owners of the EPC, an EPC may not use loan proceeds to acquire a business, acquire stock in a business or any intangible assets of a business, or to refinance debt that was incurred for those purposes.

SOP 50 10 8.1, Chapter 2: Special Transaction Structures > For specific information on change of ownership loans with an EPC/OC structure: (lines 650-653)✓ Verified

“A 7(a) loan may include loan proceeds for working capital and/or the purchase of other assets, including intangible assets for the OC’s use;

SOP 50 10 8.1, Chapter 2: Special Transaction Structures > In addition, when the EPC and OC(s) are Co-Borrowers: (lines 654-659)✓ Verified

Have a deal in mind?

Tell us about it and we will tell you how these rules apply, and which lenders finance deals like yours.

See if your deal qualifies →Broker or lender? Ask the SOP your own question