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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Buying the Majority, Not the Whole: Partial Ownership Structures

For first-time business buyers, the idea of acquiring a business can feel like a leap into the unknown.

If you're feeling that way, let me tell you about one of the most intriguing (and underutilized) strategies in the SBA 7(a) financing world:

The partial change of ownership structure.

This setup allows buyers to acquire a majority stake in a business while keeping the seller onboard as a minority owner.

For example, you buy 81% of the business and the old owner retains 19% ownership.

I use 19% as an example because 20% ownership is the threshold where a party would have to guarantee the SBA loan, so that's an important number to stay below for this structure to work.

Partial change in ownership an option that combines flexibility, continuity, and shared incentives, making it especially attractive for buyers who are new to operating a business.

Here’s why this structure might be the key to your success:

1. Retaining the Seller’s Expertise

When you buy the majority of a business but not 100%, you gain a critical advantage: the ability to retain the seller in the business for an extended period.

Under SBA 7(a) guidelines, sellers in a full buyout cannot remain involved in the business for more than 12 months post-closing.

But with a partial change of ownership, the seller can continue contributing beyond that limit.

Sellers often serve as the backbone of the company, holding customer relationships, operational know-how, and industry expertise that are critical to a smooth transition. Their continued presence allows you to minimize many of the risks that typically go with buying a business.

2. Aligning Incentives for Growth

In a traditional full buyout, the seller walks away with a check at closing and no financial stake in the business’s future.

But with a partial ownership structure, the seller retains equity in the business.

This changes the dynamics entirely.

The seller now has a direct financial incentive to help you grow the business. This could include helping to maintain critical customer & vendor relationships, pursuing new growth opportunities, or helping consult you about unexpected obstacles.

This alignment of incentives can be a game-changer for first-time buyers who are stepping into uncharted waters. The seller’s stake in the business means they are invested—literally and figuratively—in helping you succeed.

3. A Safety Net for First-Time Buyers

If you’ve never run or operated a business before, buying one outright can feel daunting. The partial ownership structure serves as a kind of safety net, offering a built-in support system through the seller’s continued presence and financial motivation.

This structure reduces the pressure to master every operational detail overnight, or within a short consulting period (many sellers only offer 2 weeks).

Instead, you can lean on the seller’s expertise while gradually taking the reins. It’s a structure designed to increase your odds of long-term success while minimizing the risks of buyer’s remorse.

How It Works with SBA 7(a) Financing

A partial change of ownership requires the buyer to purchase at least 51% of the business. The remaining minority stake can stay with the seller, and the deal is still eligible for SBA 7(a) financing.

The loan itself can cover the buyer’s majority purchase while the seller may agree to take part of their proceeds as a seller note.

Is a Partial Change of Ownership Right for You?

This strategy isn’t a fit for every deal. For example, it's only an option if the seller is actually willing to stay involved in the business. Many sellers want to sell the business and never worry about it again.

However, in the right scenarios, it's great for a first-time buyer.

I also think that many sellers would prefer this scenario, but there's a lack of buyers willing to take on this structure. That means a first-time buyer could be the perfect fit for a seller looking to stay involved in their business.

If you’re exploring the idea of buying a business and want to know if a partial ownership structure might work for you, let’s discuss. I’d love to hear your thoughts and help you evaluate your options.

Next Week’s Topic: We’ll dive into seller financing strategies and how they can bridge the gap between SBA financing and your available down payment.

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.