Can I buy a business from a family member with an SBA loan?
Short answer
Yes. We found no bar in SOP 50 10 8.1, but a close relationship ends the lender's option to do its own valuation. On a 504, the property must appraise for 100% of its estimate. Source: App. 15, Para. C.1.a; Sec. C, Ch. 1, Para. E.2.b.
Yes. We found no rule in SOP 50 10 8.1 barring a sale between relatives, but a family deal gets closer scrutiny on value.
Valuation
If the Business Purchase Price is $350,000 or less, a lender can normally do its own valuation. It cannot if buyer and seller have a close relationship (Appendix 15, Para. C.1.a). The deal then needs a Qualified Source.
Appendix 15 does not define close relationship. The 504 section gives transactions between existing owners or family members as examples (Section C, Ch. 1, Para. E.2.b).
504 projects
- An appraisal must be submitted with the application.
- The property must appraise for 100% of its estimated value.
- The price is limited to the lesser of the as-is appraised value or the purchase price of the eligible fixed assets.
- The project cannot use the Abridged Submission Method (Section C, Ch. 1, Para. F).
Equity
A cash gift is an unlimited equity source (Appendix 15, Para. C.2.a). A gift letter alone is not enough. The lender needs evidence the funds moved (Section B, Ch. 6, Para. D.3.f). The SOP does not address a seller forgiving part of the price.
Category
A relative employed in the business for 24 months or more can use the Owner Buyout path. Otherwise the deal is usually an Initial Acquisition, and the seller must exit (Appendix 15, Para. A).
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