Key Takeaways
New rulebook: Appendix 15 of SOP 50 10 8.1 governs SBA 7(a) change-of-ownership loans from October 1, 2026.
Valuation line: a lender may value the business itself when the price, excluding real estate, is $350,000 or less, up from a $250,000 financing test in 2025.
Quality of Earnings: a report with a Cash Proof is required when the purchase price is $3 million or more.
Debt capped at valuation: total purchase debt, including seller notes not on full standby, cannot exceed the business valuation. Any premium comes from the buyer's equity.
Initial Acquisition terms: debt service coverage of 1.25 to 1 and a 10% equity injection that cannot be reduced.
Market context: in Q1 2026, 2,345 small businesses changed hands at a median price of $350,000, right on the new valuation line.
What Are the Four Types of SBA Change of Ownership?
SBA sorts a 7(a) loan to buy a business into four types: Initial Acquisition, Business Expansion, Owner Buyout, and ESOP or Cooperative. Initial Acquisition is the default and carries the firmest terms. The lender must document in its credit memorandum why a deal fits any other type, so your plan should make that case.
Federal regulation lets a borrower buy "a portion of or the entirety of" an owner's interest or a business, under 13 CFR 120.202. SOP 50 10 8.1, the agency's lending rulebook, then sorts purchases into four types. The fourth, for employee stock ownership plans and cooperatives, has its own rules and is set aside here.
Initial Acquisition = a buyer becomes the largest owner without a previous stake, or after fewer than 24 months on staff.
Business Expansion = an operating company buys all of a business in the same industry group.
Owner Buyout = existing owners or long-serving employees buy out a partner, in whole or in part.
Initial Acquisition is the default. Its terms are the firmest: debt service coverage of 1.25 to 1 and a 10% equity injection that cannot be reduced or eliminated.
Business Expansion favors an operator already in the trade. A company with two full fiscal years under its current owners may buy 100% of a business in the same four-digit NAICS group. Coverage drops to 1.15 to 1.
Owner Buyouts keep control with insiders. A newer arrival may acquire less than 50% of the equity and cannot become the largest shareholder.
The lender must justify any type but the default, so make that case in the plan.
What Changed in the SBA Acquisition Rules on October 1, 2026?
Four rules moved. The lender's self-valuation line is now a $350,000 purchase price, excluding real estate. A Quality of Earnings report is required at $3 million or more. A seller may stay on as a consultant for up to 24 months. And a seller note must be current for 36 months before it can be refinanced.
SBA Information Notice 5000-880695 (2026) set the effective date and confirmed that change-of-ownership lending is "now found within Appendix 15." The appendix keeps the framework of SOP 50 10 8, in force from June 2025, but raises the evidence a lender must gather.
Rule | June 2025 (SOP 50 10 8) | October 2026 (SOP 50 10 8.1) |
Lender may value the business itself | Financing, less real estate and equipment, of $250,000 or less | Price, excluding real estate, of $350,000 or less |
Quality of Earnings report | Not named in the SOP | Required at $3 million or more |
Seller kept on as consultant | Up to 12 months | Up to 24 months |
Seller note refinanceable | After 24 months current | After 36 months current |
The Quality of Earnings rule covers Initial Acquisitions and Business Expansions. The new valuation line equals the Q1 2026 median sale price of $350,000 that Small Business Trends (2026) reported from BizBuySell's Insight Report. A typical deal sits right on it. The same report counted 2,345 businesses sold, with a combined enterprise value of $2 billion. Nearly half of brokers said lending conditions were making deals harder to complete.
Reality check: the agreed price is not the number the bank finances. All purchase debt, including seller debt not on full standby, "is limited to the business valuation amount," under Appendix 15. Where the price is higher, "the difference must be made up by equity." The valuation must be prepared for the lender, not for the buyer or the seller.
Here is the arithmetic. A buyer agrees to pay $500,000 for a business and budgets a 10% injection of $50,000. The lender's appraisal comes back at $400,000. Debt is now capped at $400,000, so the buyer must bring $100,000 of equity instead of $50,000. The cash requirement doubled because the price was fixed before the appraisal. The example is illustrative; the rule is from the SOP.
Negotiate with the likely valuation in view. Our guide to a business valuation report covers what one contains.
How Do You Qualify for an SBA Business Acquisition Loan?
Three parts of the file decide most acquisition applications. The equity must be real money, the seller's numbers must survive verification, and the deal terms must fit the appendix. All three can be settled in the letter of intent, before the plan is written.
The equity has to be real money. The minimum injection is 10% of total project cost, or of the purchase price for an Owner Buyout, under Appendix 15. Only expansions and buyouts can have it reduced. Unborrowed cash, gifts and grants without clawbacks count in full. A seller note counts only when it is subordinated and on "full standby," paying no principal or interest for the life of the 7(a) loan. Such standby sources may cover at most half the requirement.
The seller's numbers must survive verification. The lender analyzes the three most recent year-end financial statements and checks the figures behind the valuation against the seller's IRS transcripts. At $3 million and above, the Quality of Earnings report must include a "Cash Proof" that rebuilds receipts and payments from bank statements. Under SBA Information Notice 5000-882227 (2026), a report the buyer already holds can serve if a second firm reviews it. A report prepared by or for the seller cannot.
The deal terms must fit the appendix. Seller earnouts are prohibited. Performance rebates to the buyer are allowed and must pay down the loan. The business portion of the loan may not amortize beyond 10 years.
Coverage is the number that ties it together. The formula is simple:
Debt Service Coverage = Cash flow available for debt service / Annual debt service
A target that clears $150,000 a year after the new owner's salary can support at most $120,000 of annual debt service at 1.25 to 1. That is 150,000 divided by 1.25. Our SBA loan business plan checklist covers how the lender's credit memorandum treats that ratio.
What Do Partial Sales and Personal Guarantees Require?
Anyone who owns 20% or more of the business after the sale must give an unlimited personal guarantee. In a partial sale, every new owner signs as a co-borrower, whatever their percentage. A newly formed holding company placed above the operating business makes the deal ineligible.
Under 13 CFR 120.160, holders of at least a 20% ownership interest "generally must guarantee the loan." The SOP requires an unlimited guaranty and measures ownership after the sale. Every new owner, even at 1%, signs as a co-borrower. Multi-step structures, where a new entity is formed to own 100% of the operating company, are not eligible.
Reality check: selling most of a company does not end the seller's exposure to it. A selling owner who keeps less than 20% must guarantee the full loan for at least two years after final disbursement. Release comes only after 12 consecutive months of current payments. An owner planning a gradual exit should price that guarantee into the deal, because it can outlast their influence.
Which Four Numbers Shape an SBA Acquisition File?
Four figures decide most acquisition files. The valuation caps the debt. The seller note counts as debt unless it is on full standby. Diligence spending counts toward equity. And the owner's salary must be a real living figure, not a number the forecast squeezes to make coverage work.
Price to the valuation, not the listing. Debt is capped at appraised value, so any premium comes from the buyer's cash. Build the offer from a realistic valuation range.
Seller debt is debt unless it is on full standby. Under the SOP, an interest-only seller note is still underwritten on an amortization of no more than 10 years. It weighs on coverage like the bank loan. With 61% of surveyed buyers hoping for seller financing, per Small Business Trends (2026), its terms deserve as much negotiation as the price.
Diligence spending counts toward equity. Money the applicant spends on valuation and Quality of Earnings reports "can count toward the equity injection." Early diligence is part of the down payment. Our startup due diligence checklist is a starting point for what to ask the seller.
Set the new owner's salary at a real level. The buyer's pay "must be sufficient to support their current obligations and living expenses." A forecast that frees cash by underpaying the owner will not pass.
Conclusion: Write the Plan Around Verified History
An acquisition plan does a different job from a start-up plan. It shows that an existing stream of earnings has been measured accurately, priced fairly and financed safely, and that the buyer can run it. The lender must describe the applicant's industry experience and who will manage daily operations, under Appendix 15. The plan should answer with specifics: prior roles, the seller's transition schedule and the staff who stay.
The order follows from the SBA business acquisition loan updates themselves. Settle the category, commission the diligence, negotiate price and seller note against the valuation, then write the plan around verified history. Buyers who work that way will find the October changes mostly reward preparation a careful purchaser would do anyway.
When you are ready to build the file, PrometAI's SBA loan business plan page includes a debt service coverage calculator. The business plan generator turns verified history and your assumptions into the financial section a lender reads.
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