Breaking Update: The SBA has just released its long-anticipated technical corrections to its SOP, and search fund lending is on the radar. Before the hot takes start flying, take a moment to actually read the update… because if your take isn’t “technically”correct, you’ll be spreading inaccurate information. Here’s what’s important: The SBA is not banning all search fund deals. In fact, the traditional model where an entrepreneur raises capital from investors to acquire and actively operate a business remains eligible. The problem arises when that structure is modified in ways that violate SBA requirements. Two practices are now expressly disallowed: 1: If the entrepreneur lacks actual control of the business, particularly due to a side agreement giving control to a non-guarantor investor, the loan is ineligible. 2: If investors require their capital to be repaid (or receive preferential distributions to recover their investment) before the SBA guaranty is released, that investment is treated as debt, not equity… and that can jeopardize the loan’s eligibility. The SOP now makes it clear: If someone who is not personally guaranteeing the loan (typically under 20% ownership) ends up controlling the business through a separate agreement, the deal does not qualify. Makes sense… Likewise, any “equity” that walks, talks, and behaves like debt… such as redeemable preferred stock or structured return-of-capital agreements… will be treated as debt for SBA purposes. This could impact some structures. That said, this does not mean investors are prohibited from receiving profits. Standard dividends or discretionary profit distributions remain permissible… what matters is the absence of a guaranteed payback. Most lenders I work with serve “self-funded searchers,” a structure that remains fully viable. The key is that the searcher must be the guarantor, maintain control, and hold an appropriate ownership percentage. Bottom line: Well-structured search fund deals are alive and thriving, but if you’re operating in the gray zone, now is the time to reassess. Let’s lead with clarity instead of clickbait. 2025 isn’t slowing down… … and neither are we.

SBA Drops SOP 50 10 8 (effective June 1, 2025) Seeing a bunch of blah, blah, blah online? Well… here’s some more! No… the world is not ending, but yes there are some changes that you need to know! The new SOP brings a significant shift in direction that largely rolling back to how things were before January 2021. Yes… SBA lending was “a thing” before COVID. Shoutout to my OG’s out there! That means we’re seeing the return of some long-standing SBA policies that had been changed in recent years, but that were present “back in the day.” If you’ve been around SBA lending for a while, a lot of this will feel familiar: traditional underwriting is back, the Franchise Directory is reinstated (with a twist), and the "do what you do" is just a casual saying that doesn’t carry any weight. Here’s a breakdown of some of the most important changes: Franchise Directory Is Back: Franchises that were listed as of May 11, 2023, will have until July 31, 2025, to submit the Franchisor/Distributor Certification if they want to stay on the directory. Delegated Authority Rules: If you’re a PLP lender, you’re now expected to process all loans under your delegated authority, except for same-institution debt refinances and International Trade loans where the lien won’t be in first position. Shameless plug: Hire full-service SBA closing counsel. Changes to 7(a) Small Loans: The SBA has lowered the threshold for 7(a) Small Loans from $500,000 to $350,000. The minimum SBSS score for those loans is now 165 (up from 155). Equity Injection Requirements Tighten: Start-up businesses are once again required to inject at least 10% cash. Seller debt can only count toward the injection if it’s fully on standby for the entire loan term and doesn't exceed 50% of the required injection. Partial Changes of Ownership SBA is now disallowing multi-step ownership change transactions. Alright, now get this... if a seller stays in the business after a partial change of ownership, they must personally guarantee the full loan amount for at least two years, regardless of how much ownership they retain. Alright… time for rapid fire: Lenders are back in the driver’s seat for Credit Elsewhere analysis. The SBA expects a clear determination on whether the loan could be funded from borrower or 20%+ owner resources. The option to use a “substitute guarantor” has been removed, but supplemental guarantees are still allowed. Form 1050 is required again... ugh… preparing these is a pain and duplicative if you’re a law firm that prepares detailed disbursement schedules already... Form 601 is no longer required. Tax transcript verification is back for all loans. Hazard insurance is required for any loan over $50,000. Minimum life insurance requirements are back too. Borrowers will also need to sign certain minimum closing certifications. Businesses with a delinquent SBA loan are not eligible for another. SBA clarified that while Legal Permanent Residents (LPRs) are eligible borrowers, conditional LPRs are not. Businesses in shared or leased spaces must meet clarified eligibility requirements. The SOP now includes clearer standards for businesses operating under management agreements. Merchant cash advance and factoring arrangements are now flat-out ineligible for debt refi. Okay…. Take a breath… If you’ve been wishing SBA would simplify things and go back to what made the program work, this SOP will feel like a step in that direction. But… the rollback also means tighter guardrails, especially around equity injection, ownership changes, and loan eligibility. Don’t shoot the messenger, but there you have it! If you’re particularly interested in one or more of these points, please feel free to send me a DM and I will be glad to dive into the deep end in the coming weeks. ** DISCLAIMER: These new rules and regulations are still VERY new and there will likely be plenty of clarification in the coming weeks. This listing includes only some of the key points from an initial review of the release. You should always consult your lender and/or counsel when determining deal structure or eligibility.