The SBA has new rules SOP 50 10 5(J) for 7(a) business loans reducing equity requirements in Sale Transaction to 10 percent.
Download the full summary by clicking here: SBA 7(a) SOP 50.10.5(J) SBA Summary of Changes to 7(a)
(Harvest performs many SBA Business Valuations or SBA Business Appraisals required as part of the 7(a) program for sale transactions. We work for lenders such as Access National Bank, Howard Bank, M&T Bank, and others).
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The Summary announcement was released October 13, 2017. The full SOP is expected soon. Everyone expected that equity provisions might be changed but a reduction for all loans and loan sizes to 10% equity will open up the lending process to many more buyer/borrowers. Along with the reduction of equity required by the SBA is a curtailment of allowing Seller Take-back Loans to count as equity in sale transactions.
There are quite a few other provisions but these are the most significant to the business selling and business buying market up to $5 million in loan amounts which is where SBA is a necessary and powerful program.
One thing that remains to be seen is how banks will respond to the announcement. Namely, just because the SBA allows it does not mean underwriters and bank loan committees will approve it. So how banks finally address the reduced equity and therefore how many new loans get approved remains to be seen. But, the SOP does open up the way for greater flexibility and more lending.
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