A quick note:

Make sure to check out my business SMB Business Plans if you're in need of a business plan for your SMB acquisition. We know how to write these business plans in the exact style that SBA lenders are looking for.

Also, check out Pioneer Tribe Insurance if you need insurance around your business acquisition.

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SBA’s New Rules (and what they mean for you)

The Small Business Administration (SBA) has implemented transformative updates to its 7(a) Loan Program, offering small business buyers more flexibility in structuring ownership transitions.

This is huge for anyone looking to do a deal that's non-traditional.

These updates, detailed in SBA Procedural Notice 5000-862692 (effective December 6, 2024), build on earlier changes made in 2023 and provide significant new opportunities for partial acquisitions and multi-step ownership transitions.

Before 2023, SBA loans could only finance complete changes of ownership, requiring buyers to purchase 100% of a business. This restriction limited options for buyers who wanted to retain the seller or involve multiple parties in the transition.

Early 2023: SBA began allowing partial changes of ownership through stock purchases, introducing flexibility but still leaving room for improvement.

Now, with the 2024 Update: SBA borrowers can also execute partial changes of ownership through asset purchases and utilize multi-step partial ownership transitions. This change allows buyers to use creative structures that make it easier to align acquisitions with financial and operational goals.

For a detailed discussion on these changes, Eric Pacifici and Kevin Henderson from SMB Law Group delve into the implications of the SBA's updated guidelines in their LinkedIn video. Watch the video here:

​Eric Pacifici and Kevin Henderson Discuss SBA Guideline Changes.

What Are the Key Updates to SBA Guidelines?

The SBA’s updated guidelines focus on increasing flexibility in ownership transitions by allowing:

1. Partial Changes of Ownership via Asset Purchases:
   • Borrowers can now use SBA loan proceeds for partial changes of ownership structured as asset purchases.
   • This method enables buyers to acquire only the business’s assets, shielding themselves from liabilities tied to the seller’s corporate entity.
2. Multi-step Partial Ownership Transitions:
   • Borrowers can now structure multi-step ownership transitions where:
     • A new entity (formed by the buyers and potentially the seller) acquires the business assets.
     • The seller retains a minority stake, enabling operational continuity during the transition.
3. Expanded Retention of Sellers:
   • In partial ownership deals, sellers can remain involved in the business beyond one year after closing, ensuring a smoother handoff and leveraging their expertise during the transition period.

Jane and Rob’s HVAC Business Purchase in Missouri

Let’s consider a real-world scenario:

Jane and Rob, business partners based in Missouri, are evaluating the purchase of a successful HVAC business. They’re weighing several options for structuring the deal:

1. Complete 100% Ownership Acquisition (Asset Purchase):
   • Jane and Rob would purchase all tangible and intangible assets of the HVAC business.
   • Benefit: They avoid inheriting liabilities tied to the seller’s entity, such as debts, lawsuits, or compliance risks.
   • Challenge: The seller would fully exit, leaving Jane and Rob without the benefit of the seller’s operational expertise during the transition.
2. Complete 100% Ownership Acquisition (Stock Purchase):
   • Jane and Rob would buy the seller’s ownership shares, taking full control of the existing entity.
   • Benefit: Simpler transaction structure (ownership transfer via shares).
   • Challenge: They would assume all liabilities tied to the seller’s entity, including potential hidden risks.
3. Partial Change of Ownership (Stock Purchase):
   • Jane and Rob would purchase a portion of the seller’s shares, becoming co-owners alongside the seller.
   • Benefit: The seller retains equity and stays involved in the business, providing continuity.
   • Challenge: They assume liabilities tied to the seller’s corporate entity.
4. Multi-step Partial Change of Ownership (Asset Purchase):
   • Jane and Rob, along with the seller, form a new entity to acquire the business’s assets. The seller retains a minority equity stake in the new entity.
   • Benefit:
     • Jane and Rob avoid liabilities tied to the seller’s entity by purchasing only assets.
     • The seller remains involved, providing operational expertise during the transition.
   • Challenge: Structuring the multi-step deal may require additional planning and negotiation.

How the SBA Guidelines Specifically Benefit Jane and Rob

The latest SBA updates provide Jane and Rob with several advantages as they evaluate these options:

1. Flexibility in Seller Retention:
   • The SBA now allows sellers to remain involved beyond one year in partial ownership deals.
   • If Jane and Rob opt for a multi-step partial ownership structure, the seller can retain a minority stake, helping to ensure continuity and a smoother operational transition.
2. Risk Mitigation with Asset Purchases:
   • By structuring the deal as an asset purchase, Jane and Rob avoid taking on the seller’s liabilities.
   • They can focus on acquiring valuable business assets like equipment, customer contracts, and goodwill without inheriting risks such as unresolved debts or pending lawsuits.
3. Customizable Ownership Transitions:
   • Whether Jane and Rob want to involve the seller or transition to 100% ownership, the SBA’s new rules give them the flexibility to tailor the deal to their goals.

How Pioneer Capital Advisory Can Help

Navigating the SBA financing process can be complex, but that’s where Pioneer Capital Advisory LLC comes in. We specialize in assisting business buyers at all stages of the acquisition process, from search to closing.

When We Get Involved:

• While we focus on deals that are under a Letter of Intent (LOI) or close to being under LOI, we regularly speak with buyers earlier in their acquisition journey to provide insights and guidance.
• Whether you’re just starting your search or preparing to close a deal, our expertise ensures you’re prepared to navigate SBA financing with confidence.

How We Help:

• We provide tailored advice on structuring deals under the SBA’s latest guidelines, including partial and multi-step changes of ownership.
• Our team ensures that your financing is aligned with your acquisition strategy while mitigating risks and maximizing opportunities.

Ready to discuss your acquisition? Schedule a free Pre-LOI Meet & Greet Call with Pioneer Capital Advisory through our Calendly link:

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​Schedule a Pre-LOI Meet & Greet Call​

Take care,

Matthias

📩 Email me at matthias@pioneercap.com 🌐 Visit us at pioneercapitaladvisory.com​

Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

Thanks for reading! Feel free to reply directly to this email with any questions or thoughts.