SBA rules · SOP 50 10 8.1
Can the seller stay on after an SBA business acquisition?
A seller cannot remain an employee, officer, or director after a 100% buyout, but may consult for up to 24 months under 7(a); in a partial buyout under 7(a), the seller may retain equity and remain employed.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- Complete buyout under 7(a): In an Initial Acquisition or Business Expansion, the seller may not remain as an officer, director, stockholder, or employee, but the business may contract with the seller as a consultant for a transitional period not to exceed 24 months in aggregate, including extensions.
- Partial buyout under 7(a): In an Owner Buyout involving a partial change of ownership, the seller may stay on as an owner, officer, director, stockholder, Key Employee, or employee of the business.
- Guaranty on retained equity: A selling owner who retains less than 20% equity post-sale must provide a full guaranty for at least two years after final loan disbursement, releasable only if the loan has been current for the consecutive 12 months prior to release; retaining 20% or more requires a standard unlimited full guaranty.
- ESOP transactions: When an ESOP acquires a controlling interest of 51% or more, the seller may remain as an owner, officer, director, or employee, but must provide a full unlimited guaranty if retaining any ownership interest.
- 504 loan program: Under the 504 program, the change of ownership must result in the applicant owning 100% of the business, and the seller is strictly barred from remaining as an officer, director, stockholder, or Key Employee.
The source
What the SOP says
“Except as provided below, the seller in a Business Expansion or Initial Acquisition change of ownership transaction may not remain as an officer, director, stockholder, or employee of the business. If a transitional period is needed to assist the business, the small business may contract with the seller as a consultant for a period not to exceed 24 months (in aggregate, including any extensions).
“The seller may stay on as an owner, officer, director, stockholder, or employee of the business or the ESOP when: One or more of the current owners is selling less than their entire percentage of their current ownership (Owner Buyout – Partial Change); or The purchaser is an ESOP or equivalent trust or a cooperative and is acquiring a controlling interest (51% or more) in the employer business (including when the ESOP or equivalent trust or cooperative is acquiring 100% ownership of the small business).
“The seller may stay on as an owner, officer, director, stockholder, Key Employee, or employee of the business.
“Any selling owner (one who receives loan proceeds in exchange for selling part of their ownership) who remains as a direct or indirect owner and owns less than 20% of the business post-sale must provide a full guaranty for the full loan amount pursuant to 13 CFR 120.160(a).
“The term of the guaranty must be for at least two years after final loan disbursement. The guarantor may be released only if the loan has been current for the consecutive 12 months period prior to release.
“If the seller of the employer small business remains as a partial owner, the seller must provide a full, unlimited guarantee regardless of percentage of ownership. Note: This is a statutory requirement and cannot be waived.
“The change of ownership must result in the Applicant owning 100% of the business.
“The seller may not remain as an officer, director, stockholder or Key Employee of the business.
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.