As lenders begin to underwrite new loans under SOP 50 10 8.1, effective October 1, 2026, it’s important to pay close attention to the revised change of ownership guidance that now appears in Appendix 15. The guidance identifies four eligible categories: (i) Initial Acquisition, (ii) Business Expansion, (iii) Owner Buyout and (iv) ESOP & Cooperative.  Initial Acquisition is the default category. A lender using another category should explain in its credit memorandum how the Applicant satisfies all requirements for that classification.

One of the most common change-of-ownership structures, other than an Initial Acquisition, is an Owner Buyout. The SOP defines an Owner Buyout as “a change of ownership transaction that modifies the ownership structure of the Applicant business and does not involve the acquisition of another entity or asset.”  At least one member of original ownership must remain in place following the transaction and guarantee the loan, unless otherwise outlined below. An individual not currently employed by the business for a minimum of 24 months may acquire less than 50% of the total equity but may not become the largest direct or indirect shareholder. For this limitation, the individual’s direct and indirect ownership interests must be aggregated. A transaction that does not meet this limitation must follow the Initial Acquisition credit standards in Appendix 15.

The Owner Buyout category includes two subcategories: Existing Owner Buyout and Partial Change of Owner. Existing Owner Buyout subtypes cover: (i) current owners, current employees or a combination of both buying out another owner’s entire interest, if the acquiring owners or employees have actively participated in business operations for at least the last 24 consecutive months; (ii) company redemptions benefiting existing owners; and (iii) a single owner selling a 100% ownership interest to an employee who has worked for the business for at least 24 months. Despite the guidance allowing a non-employee to purchase less than 50% of the equity in a business, these subcategories do not expressly address a transaction in which a new non-employee owner acquires equity alongside existing owners and/or employees. If a Lender is considering a transaction that includes both existing owners and new non-employee owner(s), it should determine whether another change of ownership category applies or whether SBA approval is needed.

The Partial Change of Owner guidance allows new non-employee owners to acquire an interest in the business. It states that the Operating Company and each new direct and/or indirect owner (including individuals and entities) acquiring any direct and/or indirect interest in the Operating Company must be Co-Borrowers on the new loan, regardless of the percentage acquired. The guidance also states that indirect owners must personally guarantee the loan.  These requirements apply only to new owners who did not have equity in the business before the partial change of owner transaction.  Before approval, the lender should identify each required Co-Borrower and Guarantor and seek SBA guidance if the applicable role is unclear.

When SBA policy does not adequately address a transaction’s unique circumstances, the lender may request an exception. A delegated lender should submit the transaction details and the basis for the requested exception to 7aDelegatedLoanApps@sba.gov. A non-delegated lender should submit the request to 7aLoanProgram@sba.gov, and SBA will process the loan under non-delegated procedures. SBA decides each request case by case, and any approval applies only to the specific loan. The lender should retain the approval email in the loan file and confirm that the final transaction complies with all conditions of approval.

As lenders navigate this new SOP, it’s important to get clarity on deal terms for a change of ownership transaction before applying for SBA approval. When the SOP does not specifically address the deal structure, request SBA approval well before closing.  Keep the approval email in the file, and confirm that all requirements for the approved change of ownership subtype are met, including the applicable equity injection, debt service coverage and Quality of Earnings requirements. Early clarification may add time to the underwriting process, but an ineligible transaction can cost the SBA Guaranty.

For more information on structuring your change of ownership transaction, contact Kim at 267-470-1208 or krayer@starfieldsmith.com.