Is SBA acquisition equity based on price or total project cost?
Short answer
On most deals it is based on total project cost, not the price alone. An Owner Buyout is the exception, where equity is based on the purchase price of the business. Source: SOP 50 10 8.1, App. 15, Para. C.2.a.
On most deals, the equity percentage applies to total project cost. SOP 50 10 8.1, Appendix 15, Para. C.2.a, defines that as all costs required to become operational, whatever the source of funds. Lines of creditA credit limit you can draw on, repay and draw on again. and 504 loans are excluded.
An Owner Buyout is different. Its equity is measured on the purchase price of the business, as shown in the purchase and sale agreement.
The minimum by deal type
- Initial Acquisition: 10%, which cannot be reduced or eliminated.
- Business Expansion and Owner Buyout: the same minimum, but the lender may reduce or eliminate it. The borrower needs enough liquidity and no negative net worth.
- employee stock ownership plan (ESOP): no SBA equity requirement for a loan to an ESOP buying a controlling interest (at least 51%).
- Cooperative: 10%.
A worked example
An Initial Acquisition has a price of $900,000 and $100,000 of other project costs. Total project cost is $1,000,000, so minimum equity is $100,000. On an Owner Buyout at the same price, the base would be $900,000.
Ask your lender how it builds the project budget, because that sets the base.
Real estate in the deal
Real estate bought with the business carries the same requirement. In a separate loan, the lender allocates equity pro rata. A 504 loan follows its own equity rules instead.
SBA Express
Express does not avoid this. Section B, Ch. 2, Para. A.2 applies the Appendix 15 equity requirements to Express and 7(a) Small changes of ownership.
Ask lending partners about your loan
Tell us the amount you need and what it is for. We refer you to lenders that may fund businesses like yours, and it costs you nothing.
Janover Capital LLC is not a lender and is not the SBA. The lender makes the credit decision. A lender or marketplace may pay us a referral fee if we connect you, at no cost to you. Advertiser disclosure.