Can an employee buy the business with an SBA loan?
Short answer
Yes. If a single owner sells 100% to someone employed there for at least 24 months before applying, the deal is an Owner Buyout. With less tenure, it must meet Initial Acquisition credit standards. Source: SOP 50 10 8.1, App. 15, Para. A.1.c.i.
Yes. SOP 50 10 8.1, Appendix 15, Para. A.1.c.i, covers a single owner selling 100% to an employee of at least 24 months. The time is counted back from the application. The small business and the buyer must be co-borrowers.
Why the 24 months matter
With 24 months of employment, the deal is an Owner Buyout:
- Equity is measured on the purchase price, and the lender may reduce or waive it (Para. C.2.a).
- No Quality of Earnings report is required (Para. C.1.b).
With fewer than 24 months, the deal must follow the Initial Acquisition credit standards:
- Equity is 10%, which cannot be reduced or eliminated.
- A Quality of Earnings report applies if the price is $3,000,000 or more.
Coverage is 1.25:1 either way.
The seller's role
Even under Initial Acquisition credit standards, the seller may remain as an owner and employee, as an Owner Buyout allows (Para. A.1.c).
What your lender must do
The lender must document in its credit memorandum how you qualify for the category (Para. A.1). Keep payroll records that show your employment dates. The SOP does not say how the lender must verify them.
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