Good morning. If your exit plan is to hand the shop to someone — a partner, your foreman, or a stranger with a checkbook — the government just changed which of those is the cheap one.
Top story — the new SBA rulebook sorts your buyer by whether they're already on your payroll
From October 1, SBA-backed change-of-ownership loans run under a new rulebook, SOP 50 10 8.1. It catches any application issued an SBA loan number on or after that date; anything submitted through September 30 stays under the old one.
The rulebook sorts every deal into four types, and the split that decides most shops is between an Initial Acquisition — one that produces a new majority or largest owner who was never an owner of, and never employed by, the business — and an Owner Buyout, which only rearranges the ownership of the business you already have.
Same shop, same price, two very different loans. An Initial Acquisition needs a 10% equity injection the lender cannot reduce or eliminate, and, where the business purchase price is $3 million or more — real estate is appraised separately and taken out of that figure — an independent Quality of Earnings report, a forensic check on whether the profit in the books is real cash. An Owner Buyout carries the same 10% on paper, but the lender may reduce or eliminate it where the borrower has enough liquidity and working capital to keep trading and the last fiscal year-end balance sheet isn't in negative net worth. And Owner Buyouts are exempt from the Quality of Earnings requirement altogether — the SBA's stated reason is that the existing owners already know how the business runs and the deal doesn't change who manages it.
The price of the cheaper path: at least one original owner must stay in and guarantee the loan, whatever percentage they keep. And anyone not currently employed by the business can take only under 50% of the equity and must not become the largest direct or indirect shareholder — holdings through a company, trust or partnership get counted together. Fail either test and the deal is processed as an Initial Acquisition anyway.
Quick hits
The coverage test stopped being a forecast. The old rulebook let a change-of-ownership deal qualify on projections showing debt-service coverage of 1.15x within two years of funding. The new one wants 1.25x measured on the last fiscal year-end, or the average of the last two, historical or adjusted — for initial acquisitions, owner buyouts, and ESOPs alike. Business expansions stay at 1.15x. The decimal barely moved; the goalposts did.
A citizenship rule has been live since spring, and it kills deals quietly. SBA financing is limited to applicants where 100% of direct and indirect owners, plus SBA-required guarantors, are U.S. citizens or U.S. nationals with their principal residence in the U.S., its territories or possessions — and entity owners must be organized in the U.S. It took effect March 1, 2026. If a co-owner or a required guarantor doesn't clear it, the loan doesn't happen. That's a question for the first conversation, not the closing table.
Sell to an outsider and you have to actually leave. In an initial acquisition or a business expansion, the seller can't stay on as an officer, director, stockholder or employee — though the business can contract them as a consultant for up to 24 months, in aggregate including extensions, double the old 12. Sell part of your stake in an owner buyout and none of that applies. Separately: a seller note can't be refinanced until it's been in place and current — not on standby — for 36 months.
The Tip — price the same deal both ways before you pick a buyer
Run the numbers on both paths this week. One, the coverage: take last fiscal year's EBITDA, divide by what total debt service looks like after the deal, and see whether it clears 1.25x on what the business actually earned rather than what it might. Two, the cash: on the outsider path, 10% of the price is fixed, and limited sources — a seller note on full standby among them — can supply no more than half of it between them, which leaves at least 5% as your own unborrowed money. Three, who's buying: if your likely buyer is already on the payroll, the injection may be negotiable and the earnings report may not be required at all, and above $3 million that report is a real line in both cost and weeks. This is the arithmetic to take to your lender and to whoever writes your contracts — not a ruling on your deal, which only they can give you.
Tool watch — [Not sponsored]
Read it yourself; it's free, and your lender underwrites from it line by line. SOP 50 10 8.1 and the notice that issued it, Information Notice 5000-880695, are on the SBA's site — with one wrinkle worth knowing. SBA.gov has been redesigned, and the copy carrying 8.1 sits on legacy.sba.gov, listed as Version 8.1, effective October 1, 2026, as a 1,028 KB Word file; the main sba.gov document link redirects there. Changes of ownership are Appendix 15. Nobody paid for this mention, and the only thing named is a free federal document.
That's the callout. See you next time.
The Callout — the business brief for the trades. We label every commercial placement: [Sponsor], [Affiliate], or [Not sponsored]. Today's Tool watch is our own honest read — no one paid for it, and the only things named are free federal documents. 231J Ramparts Road, Te Anau 9600, New Zealand · Unsubscribe anytime.
Sources: SBA — Information Notice 5000-880695, Issuance of SOP 50 10 8.1 (effective October 1, 2026) · SBA — SOP 50 10, Lender and Development Company Loan Programs (Version 8.1, effective October 1, 2026) · SBA — Policy Notice 5000-876441, Update to Citizenship and Residency Requirements (effective March 1, 2026)