In May 2025, we hosted a webinar in conjunction with Acquiring Minds. We discussed the SBA’s most significant rule change in years, which could reshape how searchers approach SBA-financed acquisitions. During the session, we walked through what has changed, what it means for your deal, and how acquisition structures will need to adapt going forward.
Question Timestamps
- 21:21 How do you price your flat fee engagements? What’s the range for a standard two to three million SBA deal—so SMB deal? So give us a little bit on Barlow and Williams, and we’ll turn our attention back to the SBA changes.
- 24:01 Just to be clear, we can still have seller notes without all these new restrictions that are not part of equity. So, yeah, I could set up a seller note separately, but it’s not counting. I’m not trying to have it be my equity injection.
- 25:38 Partial buyouts will most likely have an impact on the seller’s after-tax net proceeds, correct?
- 27:56 Does an owner staying in the business need to credit qualify for the new loan if they’re going to be responsible for it or at least guaranteeing it?
- 28:23 For the full standby seller note, not using the full standby for equity injection but for the purpose of excluding the seller note from cash flow for the debt service coverage ratio—previously, full standby was just 24 months, but now must be the full 10 years in order to be excluded from the cash flow, debt service coverage. That is—there a question there?
- 29:27 If an investor gets 20% plus, or yeah, economic value of 20%—over 20% after preferred stock step-up upon a liquidation event, does that trip the 20% equity requirement? So I guess if the step-up takes them above 20%, yes?
- 30:01 How would you summarize the motives behind these changes? It seems to make it more difficult to use SBA loans to do leveraged buyouts. Do you think that the SBA is, in fact, trying to limit this tool for our use case of buying businesses?
- 32:34 In a recent episode of Acquiring Minds, I talked to somebody who lost his business due to seller fraud, dishonesty, and he’s subsequently talked to a lot of other business buyers who had bad outcomes. The number one reason across his sample set—not statistically significant, but a couple dozen—was seller dishonesty. So do you think, though, that part of this—getting the seller to guarantee in certain situations—is just kind of trying to prevent bad actor sellers?
- 33:20 The point about trades businesses—so are you saying that the seller rollover equity rule changes are likely to impact the trades deals more than other types of deals, where usually the owner is retaining equity to cover a licensing requirement that the new owner may need?
- 34:50 Could you facilitate a rollover equity outcome without the seller taking the PG by doing a 100% buyout, and then first having the seller buy less than 20% of equity from NewCo, from the new company?
- 36:08 Someone’s asking—Tanya is asking—please speak to the quote-unquote “credit elsewhere” test. I don’t even know what the context for that question was. Does that mean anything to you?
- 37:17 If you would restate—are sellers allowed to be independent contractors for over a year without holding equity? No, one year?
- 37:41 So if there are two owner-sellers, and one wants to sell then retire, but the other would like to sell and then remain in the business, the only way they could do that is if they retained some equity in the business, which would also mean that they would have to PG the loan for the first two years?
- 38:29 Can you dive a little deeper into the lease requirements? This is going back a few slides. Most businesses are leasing with a triple net. Can you provide the previous example in a little more detail?
- 40:18 Going back to sellers as independent contractors—the 12-month requirement, no more than 12 months—are there any other restrictions or details around that worth sharing? Timelines, benefits, compensation, anything else? Is there a good resource you can refer us to to dive into specifics there?
- 41:39 Jordan says, just to clarify—the seller can’t be an employee unless they retain some equity. But if they retain any equity, they need to personally guarantee the loan?
- 41:58 This two-year guarantee, guys—so if you’re the seller, or you’re a buyer trying to explain to the seller the implications of that, does that basically mean—like, what happens at month 25? They’re no longer responsible for the loan? So is it almost like they need to do the math of, like, what is the sum total of the first 24 months of payments? Because if the buyer stops paying them, then I need to pay them—and beyond that?
- 43:31 But if you’re the seller, it’s like, okay, as long as I can pay the first 24 months—if my buyer, meaning all of us, craps out—I can service the SBA loan, as long as I can service it out of my own pocket for 24 months. Then I’ll be okay, which is roughly a fifth of the value of the loan—of the acquisition price?
- 44:10 So, in some sense, the seller’s exposure here is really roughly a fifth of the value of the SBA loan, even for the—am I—no, because the now?
- 45:46 Well, in some ways, this gives us as buyers more power, but it’s going to be harder to get these deals done. So once the deal is done, it’s a little bit more power, if you will, and more leverage in the relationship, yes?
- 46:30 Okay, has the loan limit for manufacturing companies increased to 10 million? No, everyone?
- 47:27 So a little bit more on—if you are raising equity and one of your investors is a fund which itself has all these LPs—if any of those LPs are not U.S. citizens or green card holders, it’s a no-go?
- 48:14 And we had—the three of us had talked a couple days ago about how some banks might just kind of not ask. But you’re saying—are you saying something different now?
- 50:07 Do you guys work with clients or buyers in the great state of California?
- 51:12 What structures can we use to give performance-based payments to sellers? I’ve heard of forgivable seller notes or consulting payments based on performance—typically, performance typically being measured as pure revenue?
- 53:07 What can you tell us about the personal resource test for “credit elsewhere” as it applies to spousal assets? My spouse has some meaningful assets that are solely in her name that she doesn’t want to put at risk.
- 54:37 Can buyers use investor equity for the required equity injection, Crystal? Yes, that’s very common in SBA land.
- 56:32 Could you expand on the implication of sellers not being able to stay on as employees post-sale? Does that mean that you can’t keep the management team after a buyout if the management team had equity in OriginalCo? And if so, are there any workarounds for this? Yeah, so what if one of the managers has 5% of the business?
- 57:16 Do you guys see that much in search deals—that managers at the acquired business have little, or not-so-little, pieces of equity? How common is that?
- 59:27 Do you guys help investors who are not U.S. citizens with M&A deals that are not SBA deals?
- 59:44 I’m looking to acquire a clinic, and I’m not a physician. I need the owner—the doctor who is the doctor—to stay on for 12 months until I find a new doctor. So he can no longer be an employee, i.e., does he need to be a contractor? So I guess—what are the implications? Are there implications for businesses where there’s—like, this is—I guess it’s similar to a licensing business, to a licensing question?
- 1:00:37 Could you please remind what has changed with respect to eligibility of Canadian citizens? Are Canadians completely shut out?
- 1:02:20 What are the conditions that can keep your house out of the PG? We hear this question a lot. I’ve heard about a floor of 25% equity. Is there a seasoning requirement around that? What about a house that is in tenancy or some kind of a trust?
- 1:03:54 Basically, if you own more than 25% of your home, or you paid your mortgage down—the principal—to have 25% or more equity, you do a HELOC before getting the loan to get yourself back under 25%. Is this a common technique that you’re aware of? I’ve heard about that technique.
If you need further assistance or are in the process of negotiating a letter of intent, contact us at info@barlowwilliams.law and we will be happy to discuss your situation.