SOP 50 10 7.1: what the partial change of ownership rules mean for your next 7(a) package
The current SOP allows 7(a) proceeds to finance partial changes of ownership. Here is how the equity injection, seller standby and guaranty requirements actually work in a package.
Why partial changes matter
Before the current SOP, a 7(a) loan could not finance a partner buying a minority stake. Now a borrower can use proceeds to buy out a departing partner or admit a new one, provided the remaining and incoming owners meet the guaranty and injection rules.
For brokers this opens a category of deals, succession inside professional practices, family businesses and partner retirements, that previously went to conventional lenders or did not get done.
Equity injection on a partial change
The 10% injection applies to the total project cost, not just the purchased interest. Where the business has a pro forma debt-to-worth of 9:1 or better after the transaction, the injection may be satisfied by the business balance sheet rather than new cash. LoanPacket's pro forma balance sheet exhibit computes this automatically from the spread.
- Document the source of any cash injection with two months of statements.
- Seller notes on full standby for the life of the loan may count toward injection.
- Gifted funds require a gift letter and evidence of the donor's capacity.
Who must guarantee
Every owner of 20% or more after the transaction guarantees, and the selling owner who retains any interest remains a guarantor for two years. Form 1919 must reflect the post-closing ownership table, which is the single most common error we see in partial change packages.
Packaging checklist
Add the executed buy-sell agreement, a valuation when the price exceeds $250,000 or the parties are related, the pro forma balance sheet and the post-closing ownership table to the standard 7(a) set.