Recently, we’ve received more questions regarding the eligibility of financing a change of ownership (the buyout of a business partner) under the SBA 504 Loan Program. The SBA 504 was designed for small business owners to finance commercial real estate and industrial equipment for the use in their day-to-day operations. Since the SBA 504 loan provides long-term fixed interest rates amortized over 10, 20, or 25 years, the 504 loan can be the best choice when there is a partner buyout of the real estate and/or equipment.


Determining Eligibility for an SBA 504 Change of Ownership

  • Is the acquisition for costs associated with eligible real estate and/or other eligible long-term fixed assets? The acquisition of any other assets such as good will or receivables is not an eligible use of 504 loan proceeds and must be financed by other means, such as a 7(a) loan.
  • Will jobs for the business be created or retained because of the change in ownership OR will the jobs be lost without the change in ownership OR will the acquisition meet a NEW SBA Public Policy Goal?
  • The 504 loan proceeds cannot be used to purchase stock OR any other owners’ interest in a business. The Applicant must be purchasing the real estate where the Applicant is located and/or other eligible long-term fixed assets used in the Applicant’s business operation. If the value of the stock or other ownership interest exceeds the value of the real estate and/or other eligible long-term fixed assets (“excess value”), the excess value cannot be financed by the 504 Project financing; it must be financed separately; and must be minor compared to the value of the real estate and/or other eligible long-term fixed asset(s).
  • All other 504 Loan Program Requirements must be met.



Two Common Questions Related to a Change of Ownership

When does the equity requirement increase by 5% in a 504 transaction?

  • New Business: (7(a) and 504) – A business that has been in operation for 2 years or less at the time the loan is approved will require an increase to the minimum equity injection.
  • A business that has been in operation for more than 2 years at the time the loan is approved may be considered a New Business if it is a change of ownership that will result in new, unproven ownership/management and increased debt unrelated to business operations. If there is a change of ownership, the CDC must review the management and level of debt and make a determination whether an additional Borrower’s contribution of 5% is necessary. Operations are deemed to begin when the business begins generating revenue from its intended operations.
  • When an existing business acquires a business that is in the same 6 digit NAICS code, with identical ownership, and in the same geographic area as the acquiring entity, SBA considers this to be a business expansion, and SBA will not require an increase to the minimum equity injection

What are the SBA 7a equity requirements (13 CFR § 120.150(f))?

Except for transactions for changes in ownership as stated below, Lender’s requirement for equity and equity injection must be consistent with its requirements for similarly-sized, non-SBA guaranteed commercial loans. However, the Lender may use its discretion to reduce the amount of equity and/or equity injection required if it determines that the Applicant needs leverage that exceeds the Lender’s conventional requirements.

  1. Changes of ownership:
    1. a) Resulting in a new owner (complete change of ownership): At a minimum, SBA requires an equity injection of at least 10 percent of the total project costs, (all costs required to complete the change of ownership, regardless of the source of funds) for such transactions.


Why Growth Corp?

We know your success depends on having access to expansion capital that is both affordable and accessible.  Our experienced staff takes pride in making a difference in the lives of small business owners and their employees.  Start-ups to seasoned businesses and everything in between can benefit from working with Growth Corp.  Here’s why:

  • We’re the #1 SBA 504 Lender in Chicago and Illinois.  Growth Corp also consistently ranks as one of the top ten SBA 504 Lenders nationwide.
  • We’re one of the largest SBA 504 Refinance Lenders in the country.
  • SBA recognized Growth Corp as an Accredited Lender after a thorough review of its policies, procedures and prior performance.  The prestigious ALP status grants Growth Corp increased authority to process and close 504 loans, which provides expedited processing of loan approvals and closings.
  • We simplify the loan approval process.  Our team coordinates the entire process from application through closing, funding and servicing, making it seamless for you and your bank lender.
  • We are SBA 504 Experts.  Our responsive and educated staff focuses almost exclusively on SBA 504 loans.  We’ve got the process down to a science!
  • We’ve worked with thousands of businesses, spanning various industries.  That means, there’s not much we haven’t seen.  Your goals, project structure and business type will likely be familiar to us and we’ll understand your unique situation.
  • Our mission is to advocate for small business.  We love our communities and believe small business is the foundation of their economic prosperity.  We will do all we can to support you and your business goals.  Connect with someone from our lending team today!