Is This the Right Page for You?
This page is for you if: you are buying a business and plan to finance the purchase with a new SBA 7(a) loan. You need an LOI or purchase agreement reviewed or negotiated, or help with standby and closing documents.
This page is not for you if: you already have an SBA loan and face default, delinquency, a workout request or an offer in compromise. This is a buy-side transactional practice.
What SOP 50 10 8.1 Changes on a Financed Purchase
SOP 50 10 8.1 took effect on October 1, 2026 and replaced SOP 50 10 8. Under Appendix 15, if any SOP section conflicts with the Appendix, the Appendix governs the change of ownership transaction. The four blocks below state what matters most to a buyer.
Categories and the default
Change of ownership deals fall into four categories: Initial Acquisition, Business Expansion, Owner Buyout, and ESOP and Cooperative. Initial Acquisition is the default category, and the lender must document any other category in the credit memo. An Initial Acquisition results in a new majority or largest individual owner who was not previously a direct or indirect owner.
The equity injection
The minimum equity injection for change of ownership loans depends on the type of transaction. For an Initial Acquisition it is 10 percent. For Initial Acquisitions, the required injection cannot be reduced or eliminated.
Cash that is not borrowed counts without a limit, whether it sits on the business balance sheet or comes from another source such as a gift. Cash from a personal loan to a guarantor counts if repayment can be shown to come from a source other than the cash flow of the business. Education, advisory and agent fees are not equity.
Limited equity sources, taken individually or together, may supply no more than half of the required injection.
Does a seller note count toward the equity injection? | Can investors fund the equity injection?
Seller notes and standby
Seller debt that is subordinated to the lender and on full standby may be considered equity. Full standby means no payments of principal or interest for the term of the 7(a) loan.
The lender must use SBA Form 155 or its own equivalent standby agreement and attach a copy of the note. Standby debt may accrue interest, which may be added to the standby debt and amortized after the 7(a) loan is paid in full. The standby creditor must subordinate any lien rights in the collateral to the lender and take no action against the borrower without the lender's consent. The provider of standby debt may not take an equity investment in the business.
For additional deal debt that is not on full standby and has interest-only payments, the lender must apply an amortization of 10 years or less.
"A seller note with weak terms is a discount on your sale price dressed up as full consideration." Alex Lubyansky
Valuation and quality of earnings
The lender may not use a business valuation prepared for the applicant or the seller. If the Business Purchase Price is $350,000 or less, the lender may perform its own valuation, unless there is a close relationship between the buyer and the seller.
If the amount paid for the business exceeds the business valuation, equity must make up the difference. Total debt eligible to support the transaction, including seller debt that is not on full standby, is limited to the business valuation amount.
For an Initial Acquisition at a Purchase Price of $3 million or more, the lender must also obtain a Quality of Earnings report. The $3 million threshold is set before buyer equity, seller debt or other financing. An independent, experienced financial professional must perform it for the benefit of the lender.
"The data room is the buyer's first experience of how you run your business." Alex Lubyansky
The Four Stages of the Engagement
The lender is a party to an SBA-financed purchase in a way it is not in a cash deal. Each stage below ties our work to a rule stated under SOP 50 10 8.1.
Letter of Intent
The LOI sets price, seller note terms, standby, seller transition and any rebate or working capital true-up. Seller earnouts are prohibited. In an Initial Acquisition the seller may not remain as an officer, director, stockholder or employee, and a consulting role is capped at 24 months in total. Price above the lender valuation is covered by equity, and total deal debt is limited to the valuation amount.
"In 2026, the biggest check in the room keeps losing to the cleanest path to closing." Alex Lubyansky
Purchase Agreement
Loan proceeds may fund a change of ownership by stock purchase or by asset purchase. An asset purchase of all or substantially all of the assets is treated as a change of ownership. A 7(a) loan may finance intangible assets such as goodwill and agreements not to compete. A working capital true-up in the agreement is not a rebate. The lender must obtain all purchase agreements with every schedule and amendment.
"The escrow size is the part of the price the buyer doesn't actually believe in yet." Alex Lubyansky
Lender Coordination
The valuation is ordered by and prepared for the lender, and its scope of work should identify whether the deal is an asset or stock purchase. A required QoE is done for the lender, not for the seller. The lender must validate the seller's reported information with IRS tax transcripts and must verify the seller's financial data, including a selling sole proprietor's Schedule C. The lender must document a site visit to the business being acquired. For acquisitions, the combined size of the applicant and the acquired business must meet applicable size standards.
Closing
The lender must verify the equity injection before disbursing any loan proceeds and keep the evidence. A promissory note, gift letter or financial statement alone does not prove a cash injection. If the injection comes from borrowed funds, such as a HELOC, the lender must address repayment and standby terms. Lender and borrower sign SBA Form 1050, or the lender's equivalent, at first disbursement. Pre-disbursement conditions include standby agreements, appraisals, business licenses and the equity injection. The lender must take a security interest in the receivables and inventory of the operating entity, and a first lien on assets bought with loan proceeds. Holders of at least 20 percent generally must guarantee the loan. The credit memo must address life insurance, on whom and how much. SBA requires hazard insurance on all collateral for 7(a) loans over $500,000.
"In a K-shaped market, discipline is the only thing that separates the deals that close from the ones that quietly die on a spreadsheet." Alex Lubyansky
What Each SOP 50 10 8.1 Rule Changes in the Deal Documents
The table maps six rules under SOP 50 10 8.1 to the LOI, the purchase agreement and the closing.
| Rule under SOP 50 10 8.1 | LOI | Purchase agreement | Closing |
|---|---|---|---|
| 10 percent injection, not reducible for an Initial Acquisition | Name the sources and amounts of the injection. | Match the funds flow and sources to the LOI. | The lender verifies the injection before disbursing. A note or gift letter alone is not proof. |
| Limited equity sources capped at half of the injection | Sort each proposed source by whether it is a limited source. | Write the standby terms into any note. | SBA Form 155 or an equivalent is signed, with the note attached. |
| Seller debt counts as equity only on full standby | State full standby for the 7(a) term if the note is to count. | Interest may accrue and be amortized after the 7(a) loan is paid in full. | The standby creditor subordinates lien rights and takes no action against the borrower without the lender's consent. |
| Price above valuation is covered by equity; total debt is capped at valuation | The lender valuation is set against the price. | Address what happens if the valuation comes in below the price. | Extra funds used to cover a price above valuation must be on full standby. |
| Seller earnouts prohibited; buyer rebates allowed | No seller earnout. Buyer rebates based on business performance are allowed. | Rebate funds from the seller pay down the 7(a) principal. | A working capital true-up is not a rebate. |
| Seller exit in an Initial Acquisition | Agree the seller role and the transition period. | A consulting agreement runs no more than 24 months in total. | The seller is not an officer, director, stockholder or employee. |
What to Bring to the Engagement Assessment
- The term sheet or proposal letter from the SBA lender, if one is named.
- The signed or draft LOI, with every exhibit.
- The source of the equity injection: account statements showing unborrowed cash, a gift letter with the matching transfer, or the terms of any borrowed funds.
- The seller note term sheet, if any, including standby terms.
- Any draft purchase agreement, with its schedules and amendments.
- The lender valuation or QoE engagement letter, if issued.
- A list of liens on the seller assets that the lender will need released or subordinated.
Tell us whether you are the buyer, seller or an adviser, and which work you want counsel to assess. Include the transaction documents already exchanged, your lender's current stage, any counsel already involved and the closing date you are working toward. Identify any lender request or unresolved issue that is affecting the transaction. We can discuss the appropriate scope and availability after reviewing your summary.
Three Quick Answers Help Us Scope the Assessment
Exact figures are not needed. Add your answers in the transaction description below.
- Has an SBA lender issued a term sheet or proposal letter? Options: Yes, No, Not yet.
- Where will the equity injection come from? Options: Unborrowed cash, Gift, Investor equity, Seller note on standby, Borrowed funds (HELOC or personal loan), Mixed, Not decided.
- Does the deal include a seller note? Options: Yes, No, Under discussion.
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Submission Received
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Meanwhile, feel free to call us directly at (248) 266-2790
Frequently Asked Questions
Does a seller note count toward the SBA equity injection under SOP 50 10 8.1?
Seller debt counts as equity only if it is subordinated to the lender and on full standby, with no payments of principal or interest for the term of the 7(a) loan. The lender must use SBA Form 155 or its own equivalent standby agreement and attach a copy of the note. Limited equity sources together may supply no more than half of the required injection.
What if the seller note is not on full standby or has interest-only payments?
Debt counts as equity for SBA purposes only when it is on full standby. For additional deal debt that is not on full standby and has interest-only payments, the lender must apply an amortization of 10 years or less. The total debt eligible to support a change of ownership, including seller debt not on full standby, is limited to the business valuation amount.
Can the seller stay on after closing?
In an Initial Acquisition, the seller may not remain as an officer, director, stockholder or employee of the business. The business may contract with the seller as a consultant for a period not to exceed 24 months in aggregate, including any extensions. These rules are stated under SOP 50 10 8.1.
Read the guide on seller equity in an SBA-financed acquisition
Can we use an earnout in an SBA-financed purchase?
Seller earnouts are prohibited under SOP 50 10 8.1. Buyer rebates based on business performance are allowed. Rebate funds received from the seller must pay down the principal of the 7(a) loan. A working capital true-up in the purchase agreement is not a rebate. Alex Lubyansky: "The best deals give sellers ways to achieve their desired outcome if the business performs as they claim it will."
Is this the right firm for an SBA loan default or workout?
No. This page covers buy-side acquisition counsel for buyers using new SBA 7(a) financing to buy a business. If you already hold an SBA loan and face default, delinquency, a workout request or an offer in compromise, this is not the right page.
Who has to sign a personal guarantee?
Holders of at least a 20 percent ownership interest generally must guarantee the loan. In a partial change of ownership, the guaranty duty follows the post-sale ownership percentages. A selling owner who stays on and owns less than 20 percent after the sale must still provide a full guaranty for the full loan amount.
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Who We Help
Acquisition Stars represents buyers, sellers, and operators across a range of transaction types and industries. Explore the practice area closest to your deal.
SBA Program Alerts
SOP 50 10 8.1 took effect on October 1, 2026 and replaced SOP 50 10 8.
Submit Transaction Details
Alex Lubyansky leads every engagement, reviews every document, and leads negotiation and closing, with an associate supporting the work. This page covers buyers using new SBA 7(a) financing, not loan default or workout matters.
Request Engagement Assessment
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