Dec 13, 2023
This week on the podcast, Ed had the opportunity to visit with "SBA Ray" otherwise known as Ray Drew of Fundex Solutions! In this podcast episode, we delve into the recent changes implemented by the U.S. Small Business Administration (SBA) in its lending programs. These changes include two Procedural Notices and new Standard Operating Procedures (SOP) that have a significant impact on the 7(a) and 504 lending programs, with a particular focus on financing change of ownership opportunities.
Here are the key highlights of the SBA’s new SOP and additional guidance:
- Equity Injection
Changes:
- Equity injection refers to new cash or assets added to a project not on the borrower’s balance sheet before.
- For acquisitions resulting in a complete change of ownership, a minimum equity injection of 10% of the total project costs is now required. Seller debt on standby or interest-only can be considered for equity injection.
- Employee Stock Ownership
Plans (ESOPs):
- Lenders with delegated authority can now submit ESOP transactions.
- Loans to ESOPs for purchasing a controlling interest (at least 51%) do not require equity injection.
- Partial Changes of
Ownership:
- SBA loans can now fund the purchase of a portion of an owner’s interest.
- Selling owners can remain involved in the business after the partial change of ownership.
- Rolled equity from the target company into the new company remains ineligible.
- Additional Guaranteed
Dollars:
- Individuals can receive an extra $3.75 million in guaranteed dollars, equivalent to a $5 million 7(a) loan, for acquiring a business not in the same 3-digit NAICS subsector as any currently owned business with existing SBA debt.
- Buyer
Rebates:
- Buyer rebates, tied to business performance, are allowed, providing flexibility in deal structures.
- Helps mitigate risks like concentration, employee retention, and more.
- Elimination of Personal
Resource Test:
- SBA lenders no longer need to evaluate the personal resources of loan applicants.
- Stronger, more liquid borrowers can now pursue SBA financing, offering greater flexibility for multiple transactions.
- Reduced Documentation
Requirements:
- The SBA has reduced the amount of documentation lenders must collect to verify equity.
These changes bring significant opportunities and flexibility to small businesses seeking SBA financing, making it essential for entrepreneurs and lenders to stay informed about the latest updates. Tune in to learn more about how these changes could impact your business and financing options. Listen Here
Connect with Ray:
Email: rdrew@fundexsolutions.com
Website: https://fundexsolutions.com/
Twitter:
https://twitter.com/SBA_Ray?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor
Youtube: https://m.youtube.com/channel/UC7_6-lZHN4cXa0sF6Tu8AGQ
LinkedIn: https://www.linkedin.com/in/raydrew4589
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About the Show
The Defenders of Business Value Podcast combines nearly 31 years of valuation and exit planning expertise working with business owners. Ed Mysogland has a mission and vision to help business owners understand the value of their business and make it a salable asset. Most of the small business owner's net worth is locked in the company, and to unlock it, a business owner has to sell it. Unfortunately, the odds are against business owners that they won't be able to sell their companies because they don't know what creates a saleable asset. Ed interviews experts who help business owners prepare, build, preserve, and one-day transfer value with the sale of the business.
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