# What are the four SBA change of ownership categories?

**Short answer:** Initial Acquisition, Business Expansion, Owner Buyout, and employee stock ownership plan (ESOP) and Cooperative. The category sets the equity, debt service coverage and seller rules. Initial Acquisition is the default. Source: SOP 50 10 8.1, App. 15, Para. A.1.

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Last checked: 2026-11-09

The four categories are Initial Acquisition, Business Expansion, Owner Buyout, and ESOP and Cooperative. SOP 50 10 8.1, Appendix 15, Para. A.1, sorts every 7(a) change of ownership into one of them. Initial Acquisition is the default. A lender must document why a deal fits any other category, and must enter the category in the SBA Loan System.

- Initial Acquisition: the new majority or largest owner was not previously an owner, or has worked at the business fewer than 24 months. Equity is 10%, which cannot be reduced or eliminated. Coverage is 1.25:1.
- Business Expansion: a business with at least two full fiscal years under current ownership buys 100% of another in the same four-digit NAICS group. Coverage is 1.15:1.
- Owner Buyout: ownership changes inside the business, with no other entity or asset acquired. At least one original owner must remain and guarantee the loan, unless Appendix 15 says otherwise. Coverage is 1.25:1.
- ESOP and Cooperative: an employee plan or cooperative buys a controlling interest of 51% or more. Coverage is 1.25:1.

## Why the category matters

It decides whether equity can be reduced. A lender may reduce or waive it on a Business Expansion or Owner Buyout, but not on an Initial Acquisition. A cooperative needs 10%. For an ESOP, there is no SBA equity requirement for a loan to an ESOP buying a controlling interest (at least 51%).

It also decides the seller's role and whether a Quality of Earnings report applies (Para. C.1.b).

## ESOP limits

An ESOP loan cannot be structured as an Eligible Passive Company (EPC)/OC. A seller who remains a partial owner must give a full, unlimited guarantee (Section A, Ch. 2, Para. B).

## Sources

- [SOP 50 10 8.1, App. 15, Para. A.1 (about pp. 364-368)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 15, Para. C.2 (about pp. 374-377)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. A, Ch. 2, Para. B (p. 45)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)