The New SBA Rules Are Here!
How the June 1 SOP changes reshape seller notes, rollovers, guarantees, and who can actually do these deals.
🧠 Lead Story: SBA 7(a) Rule Changes (Effective June 1, 2025)
How the new rules reshape seller financing, rollovers, and risk for every buyer.
We told you this was coming.
The SBA’s June 1 SOP changes are now live. And they’re… intense.
The updates affect:
Seller notes
Equity rollovers and partial buyouts
Personal guarantees
Foreign ownership
Search fund economics
And if you don’t understand what’s changed, and how to navigate it, your deal could die before you even get into underwriting.
Let’s break it all down.
🔍 What Changed (And Why It Matters)
Here’s a short list of what’s new under the SBA SOP 50 10 8 (as of June 1, 2025):
1. Seller Notes Must Be on 10-Year Standby if Used as Equity
Previously: You could use a seller note as part of your 10% equity injection if it was on standby for 2 years.
Now: It must be on full standby for 10 years to qualify as equity.
✅ Why it matters:
This removes the ability of Buyers to satisfy their equity injection with a short-term seller note from the table. In order for a seller note to satisfy a Buyer’s equity injection, Sellers must be willing to finance 10%+ of the deal without payments for a full decade. That’s a much harder sell, and it could push some deals out of SBA eligibility.
Pro tip: Structure with real buyer equity. Keep seller notes as debt, not equity. Bring SMB Law in early to design around this.
2. Any Seller Who Retains Equity Must Personally Guarantee for 2 Years
This is big.
If a seller keeps even 1% ownership of the business post-close — they must personally guarantee the loan for at least two years.
✅ Why it matters:
Most sellers won’t agree to retain risk post-sale. This change will likely kill most partial buyout transactions with sellers. Buyers will need to plan for 100% buyouts…or have tough conversations early.
3. Any Deal Where Seller Will Retain Any Ownership Must Be Structured as a Partial Sale of equity
A traditional “equity rollover” structure is no longer permitted. Previously, if a Seller wanted to retain equity, the transaction could still be structured as an asset purchase and Seller would receive equity in the new buying entity.
Now, if a Seller intends to retain any equity after the Closing, the only permissible structure is an equity purchase where Buyer purchases less than 100% of the outstanding equity.
✅ Why it matters:
Asset transactions provide several significant benefits to Buyers, including protecting Buyers from pre-closing liabilities of the company as well as certain tax advantages related to depreciable assets. Now Buyers are required to use an equity acquisition structure and, while certain of the tax advantages of an asset sale can be accomplished, an equity purchase poses material risks to Buyers due to the company’s pre-closing liabilities.
4. Third-Party Investors Can’t Participate in Partial Buyout Structures Without Personally Guaranteeing the Loan
Read that again.
If you're structuring a deal where the Seller will retain some ownership (even 0.1%) after closing, every equity owner other than the Seller — even “silent” investors — must also personally guarantee the loan for the entire term. Note that, as discussed in point 2 above, the Seller is only required to guarantee the loan for two years.
✅ Why it matters:
This all but eliminates third-party investors in partial change of ownership transactions. Most investors won’t (and shouldn’t) personally guarantee a buyer’s loan. We expect a major drop in creative equity structures for partial buyout transactions going forward.
5. 100% of Equity Must Be Owned By U.S. Citizens or Green Card Holders
Foreign investors, even minority investors without management control, are prohibited from owning any equity in a business with an SBA loan unless they meet residency requirements.
✅ Why it matters:
If you have international LPs or backers, they cannot hold equity in SBA-financed deals. Full stop.
6. Search Fund Model Now Requires Real Economics for the Sponsor
This one came late and confused a lot of people.
The SBA wants to ensure that search fund sponsors have a legitimate, profit-driven reason for pursuing a deal… not just acting as a conduit for investor capital.
Expect scrutiny on:
Equity splits
Preferred vs. common
Vesting structures
✅ Why it matters:
If you’re using a search fund structure, make sure you’ve got economic alignment. We’ve created a one-pager on SBA-compliant search fund models — email info@smblaw.group and we’ll send it over.
📈 Acquisition Insight: Play It Straight, Play It Smart
You can still do incredible deals under SBA.
But now more than ever, you’ve got to:
Structure cleanly
Educate sellers early
Get legal involved before the LOI is signed
Sellers are confused. Brokers are scrambling. Even some lenders are still figuring it out.
Here’s how to lead with confidence.
💬 Buyer Diplomacy: Navigating the New Norm
Here’s the truth:
These updates are frustrating, but they’re not arbitrary.
They’re a reflection of the SBA’s attempt to curb defaults and force buyers into healthier, more stable structures.
That means:
No games.
No creativity for creativity’s sake.
No last-minute “can we just…” proposals.
How to Communicate with Sellers and Brokers
Be direct, but diplomatic.
“This isn’t my rule. It’s the lender’s. Here’s how it affects your note.”Show them the upside.
“You’ll get more cash at close. No risk. Just a clean exit.”Loop in SMB Law Group early.
We’ll help clarify terms, provide sample structures, and get lender buy-in early.
🧠 How to Apply These Rules (Without Tanking Your Deal)
Here’s your game plan:
✅ Send us your LOI! We’ll review or redline it free if you’re using our template
✅ Ask for our Search Fund Economics One-Pager if you’re doing an investor-backed deal
✅ Educate your seller early with clean talking points
✅ Skip earnouts, rollovers, and equity gymnastics unless your lender signs off first
✅ Let us know if you need debt coaching… we’ve done this hundreds of times
🔐 Download: Our SBA-Ready LOI Template
If you’re using SBA financing, you need an LOI that supports the structure.
We’ve got you:
✅ SBA-compliant
✅ Buyer-favorable
✅ Reviewed by top SBA lenders
✅ Clean and editable
→ Email info@smblaw.group and we’ll send it.
If you use our template, we’ll finalize it for free when you retain us.
⚠️ SBA Loans Are Serious Debt — Use Them Wisely
SBA debt is powerful leverage, but if your business can’t support it, it’ll crush you.
Take this story from Acquiring Minds:
🎧 “I Bought a Construction Company, Then Faced an SBA Loan Default”
Justin Willess opens up about the pressure of debt and how one bad quarter nearly broke the business.
👉 https://acquiringminds.co/articles/justin-willess-construction-business
Use SBA when the margins are strong, leadership is ready, and you're prepared to own every outcome.
📚 Additional Reading on SBA Loan Risk
Nerd Wallet: “What Happens If You Default on an SBA Loan?”
WR Law Group: “I Defaulted on My SBA Loan — Now What?”
🚨 Final Word
Don’t panic — plan.
SBA deals are still doable. Still powerful. Still life-changing.
But now more than ever, structure matters.
Let us help you do it right.
📬 info@smblaw.group
⚠️ Disclaimer
This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. We do not speak on behalf of the SBA, and the information herein is based on our interpretation of the June 1, 2025 SOP updates and lender guidance at the time of publication. Certain examples are anonymized or modified for educational purposes only. SMB Law Group is a strategic partner of certain lenders and may benefit financially from referrals or engagements. Always consult a qualified professional before making legal or financing decisions.