SBA Change of Ownership Calculator
Since October 1, 2026, the SBA sorts every business purchase into one of four categories, and the category decides your down payment, whether it can be waived, the cash flow coverage the lender needs, the reports required and what the seller can do after closing. Answer a few questions to see which one your deal is.
SBA category
Initial Acquisition
A new owner who was not already an owner or a 24-month employee: Initial Acquisition, the default category.
- Down payment
- 10%, cannot be reduced
- What can count toward it
- Half can be a seller note
- Minimum debt service coverage
- 1.25 to 1
- Business valuation
- Independent valuation required
- Quality of earnings report
- Not required
- The seller after closing
- Consultant only, up to 24 months
- Loan term
- Up to 10 years
- Who signs the loan
- You and the business, together
- Collateral
- Business assets, then personal real estate
At least 10% of the total project cost: the price plus closing costs, the guaranty fee and any working capital, not the price alone. It cannot be reduced or waived.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Equity Requirements)
Cash that is not borrowed (including a gift) counts in full. A seller note or other debt on full standby (no principal or interest for the life of the SBA loan) and minority investors (under 20%, no control) can together cover no more than half.
SOP 50 10 8.1, Appendix 15, Para. C.2.a (Source of Equity Injections)
The business has to cover its debt payments 1.25 times, using the last fiscal year end or the average of the last two.
SOP 50 10 8.1, Appendix 15, Para. C.2 (Lender's Credit Analysis)
An independent valuation by an accredited Qualified Source, prepared for the lender (not for the buyer or seller). If the price is above the valuation, the difference has to be made up with equity.
SOP 50 10 8.1, Appendix 15, Para. C.1 (Business Valuation Requirements)
Required only at a business purchase price of $3 million or more.
SOP 50 10 8.1, Appendix 15, Para. C.1 (Quality of Earnings)
The seller cannot stay as an owner, officer, director or employee, but the business can hire them as a consultant for up to 24 months in total.
SOP 50 10 8.1, Appendix 15, Para. A (Change of Ownership Requirements)
A loan that finances a change of ownership cannot amortize over more than 10 years, and cannot have a balloon. Only owner-occupied real estate bought in the same deal can go longer.
SOP 50 10 8.1, Appendix 15 (Loan Maturities)
A 7(a) loan cannot be made to an individual alone. A person buying 100% of the shares signs as a Co-Borrower with the business, jointly and severally. If a company you form buys the business, that company is the Borrower, with the business you buy as Co-Borrower if it stays a separate entity.
SOP 50 10 8.1, Appendix 15 (Types of Changes of Ownership)
The lender takes a lien on everything bought (vehicles have their own rule) and on the business's fixed assets. If they do not cover the loan, it must take available equity in personal real estate (home, investment property and other commercial property) solely owned by each Co-Borrower, owner of 20% or more and guarantor. Property with less than 25% equity is not required, and the lien can be limited to the shortfall.
SOP 50 10 8.1, Appendix 15 (Collateral)
Watch for
- Seller earnouts are prohibited. A working capital true-up at closing and rebates from the seller to the buyer are allowed.
SBA minimums from SOP 50 10 8.1 (effective October 1, 2026). Lenders can ask for more. General information, not a loan approval or legal advice. More SBA rules, answered.
The four categories side by side
| Category | Who | Down payment | Coverage | Seller after closing |
|---|---|---|---|---|
| Initial Acquisition | A new owner buys the business | 10%, cannot be reduced | 1.25 to 1 | Consultant only, up to 24 months |
| Business Expansion | An existing business buys another in the same industry group | 10%, lender may reduce or waive | 1.15 to 1 | Consultant only, up to 24 months |
| Owner Buyout | Owners or 24-month employees buy out an owner | 10%, lender may reduce or waive | 1.25 to 1 | May stay on |
| ESOP & Cooperative | Employees buy a controlling interest | None required | 1.25 to 1 | May stay on |
A quality of earnings report is required for Initial Acquisition and Business Expansion at a business purchase price of $3 million or more. Every category needs a business valuation, done in house by the lender only at $350,000 or less with no close relationship between buyer and seller. Seller earnouts are prohibited in all four.
Worked scenarios
Common deals, each run through the same rules with the answer cited to Appendix 15.
- Buying Your First Business With an SBA LoanInitial Acquisition
- Employee Buyout Under 24 Months: SBA RulesInitial Acquisition
- Employee Buyout After 24 Months: SBA RulesOwner Buyout
- Buying a Competitor With an SBA LoanBusiness Expansion
- Buying a Second Business in a Different IndustryInitial Acquisition
- Buying Out a Business Partner With an SBA LoanOwner Buyout
- Partial Buyout: Bringing In a Minority PartnerOwner Buyout
- Partial Buyout: A New Owner Buying the MajorityOwner Buyout (Initial Acquisition standards)
- The $3 Million Quality of Earnings RuleInitial Acquisition
- Buying a Business and Its Building With an SBA LoanInitial Acquisition
- Seller Note on Full Standby in an SBA PurchaseInitial Acquisition
- Keeping the Seller On After an SBA PurchaseInitial Acquisition
- Buying the Family Business With an SBA LoanOwner Buyout
- Buying a Business Under $350,000 With an SBA LoanInitial Acquisition
- Business Expansion With No Down PaymentBusiness Expansion
- Selling to an ESOP With an SBA LoanESOP & Cooperative
Questions
What are the four SBA change of ownership categories?
Under SOP 50 10 8.1, Appendix 15: Initial Acquisition (a new majority or largest owner), Business Expansion (an existing business buying another in the same four-digit NAICS industry group), Owner Buyout (existing owners or 24-month employees buying out an owner, in full or in part), and ESOP & Cooperative. Initial Acquisition is the default; the lender has to document why a deal qualifies for any of the others.
Can the 10% down payment be waived on an SBA acquisition?
Not for an Initial Acquisition. For a Business Expansion or an Owner Buyout, the lender may reduce or eliminate it if the borrower has enough liquidity and working capital after the deal and did not show a negative net worth at the last fiscal year end. If it is waived, the loan cannot include dedicated permanent working capital for 90 days.
When does an SBA acquisition need a quality of earnings report?
For an Initial Acquisition or Business Expansion with a business purchase price of $3 million or more, measured before any equity or seller debt and excluding real estate. Owner Buyouts and ESOP transactions are not subject to it.
What happens if an employee of less than 24 months buys the majority of a business?
If they buy the whole business, it is an Initial Acquisition: 1.25 coverage, a 10% down payment that cannot be waived, the $3 million quality of earnings rule, and the seller can only stay as a consultant for up to 24 months. If the seller keeps a stake, it stays an Owner Buyout held to those same Initial Acquisition credit standards, and the seller may stay on as an owner and employee.
Straight from the SBA's rulebook
The SBA rules behind this
- Are earnouts allowed in an SBA business acquisition?
- Can an SBA loan be paired with a conventional loan (pari passu)?
- Can an SBA loan be used for a stock purchase or an asset purchase?
- Can an SBA loan be used to buy a business from a family member?
- Can an SBA loan be used to buy a franchise?
- Can an SBA loan pay for a non-compete agreement?
- Can an SBA loan pay for goodwill?
- Can an SBA loan refinance a seller note?