The SBA SOP 50 10 7 was released with an effective date of August 1, 2023. Download the full SBA SOP 50 10 7 here: SBA SOP 50 10 7

In the world of Small Business Administration (SBA) lending and small business acquisitions, change is the only constant. Lenders, sellers, and borrowers alike must stay attuned to shifting regulations and policies that directly impact their ability to transact, grow, and succeed. The most recent alteration, a substantial update to the SBA’s Standard Operating Procedure (SOP) 10 7, represents a paradigm shift for the SBA 7(a) loan program.

For years, the 7(a) loan program has been an essential resource for small businesses seeking financial support. However, its usability at times can be limited, including the prohibition of using loan proceeds to purchase part of a business. Partial equity, earn outs, and certain employment arrangements were generally off-limits, often complicating business transactions and transitions.

Now, in a welcome change, the SBA has revamped these regulations. The newly released SOP 10 7, which supersedes SOP 10 6, ushers in a new era of flexibility for SBA 7(a) lenders, borrowers, and sellers. In a landmark shift, borrowers can now use 7(a) loan proceeds to purchase a portion of or the entirety of an owner’s interest in a business, facilitating partial or full business acquisitions. Sellers, meanwhile, gain the advantage of maintaining equity and remaining employed in the business, smoothing out transition processes.

This unprecedented move has significant implications for all stakeholders. For SBA lenders, sellers, and borrowers, it brings new opportunities, broadens horizons, and simplifies business transitions. For the small business ecosystem as a whole, it may dramatically enhance the ease and success of business transitions, enabling the maximization of value and the limitation of tax consequences.

In this blog, we delve into these changes, explore their implications, and highlight how they will benefit SBA lenders, sellers, and borrowers alike. Buckle up as we navigate through the updated SOP 10 7, understanding its impact on small business transitions and the tremendous potential it unlocks.

Benefits for SBA Lenders

The revised SOP 10 7 brings promising shifts for SBA lenders. The allowance for partial business purchases expands lending opportunities, allowing lenders to cater to diverse borrower needs and diversify their risk. With smaller, staggered acquisitions, the risk associated with each loan could be reduced.

The flexibility of the 7(a) loan program may also stimulate demand, increasing loan volume and business growth for lenders. Furthermore, the ability for sellers to retain equity and stay employed in the business adds a layer of security, potentially influencing risk assessment and lending decisions positively. Overall, the updated SOP 10 7 opens new avenues for SBA lenders, diversifying their offerings and enhancing the overall lending landscape.

Advantages for Sellers

The updated SOP 10 7 introduces substantial advantages for sellers. The ability to retain equity and stay employed in the business allows sellers to participate in future growth while ensuring smoother transitions and minimizing business disruption. This continuity can be beneficial if the sellers earn-out is tied to future business performance.

Moreover, the allowance for partial business sales offers potential tax advantages. By staggering the release of equity, sellers may structure transactions to minimize tax liabilities, thereby increasing net proceeds. Overall, the revised SOP 10 7 empowers sellers to craft exit strategies that maximize their financial benefits and allow continued involvement in their businesses.

Benefits for Borrowers

The revised SOP 10 7 offers exciting opportunities for borrowers. The option to purchase a business in stages reduces initial financial strain and opens up business ownership to a wider range of entrepreneurs. Partial purchases also allow for the gradual transition of ownership, fostering business continuity.

Moreover, the provision for sellers to retain partial equity and employment encourages a smooth transition, providing borrowers with invaluable business knowledge and continuity in operations. Overall, the changes promote a more accessible and sustainable route to business ownership, creating greater possibilities for aspiring business owners.

The Impact on Small Business Transitions

The SOP 10 7 updates can positively influence small business transitions. The opportunity for smoother handovers, with sellers retaining equity and employment, reduces disruption and promotes continuity. This continuity aligns with the evolving needs of the small business landscape, including the requirements of aging business owners and rising entrepreneurial activity.

By facilitating ownership transfers and continuous operations, these changes contribute to long-term business sustainability. Hence, the updated SOP 10 7 helps enhance the success of small business transitions and encourages sustainable growth in the small business ecosystem.

Conclusion

In summary, the recently updated SBA SOP 10 7 is a significant stride forward for small businesses, SBA lenders, sellers, and aspiring business owners. By enabling partial business transactions, maintaining equity, and ensuring continuity in business operations, it injects newfound flexibility into the process of business transitions. This adaptability caters to the diverse needs of the modern business ecosystem and promotes a more inclusive and sustainable path to entrepreneurship and business growth.

However, navigating these changes and maximizing their potential benefits requires expertise. It’s crucial to collaborate with a qualified business valuation firm that deeply understands the updated SBA SOP and can effectively value partial interests.

In such a complex and evolving landscape, having an experienced partner on your side can make all the difference. A professional valuation firm can provide invaluable insights into the implications of these changes for your specific situation, helping you to strategically navigate the transaction process and achieve the best possible outcomes.

In this new era of flexibility and opportunity, it’s the right time to make the most of the possibilities on offer. Don’t hesitate to seek professional advice and ensure you are fully equipped to navigate the updated SBA SOP 10 7. Reach out to our team today.

We look forward to working with you!

Sincerely, 
Brandon Hall
Founder/President