Pain To Profits

SBA SOP Changes: What They Mean for Search Funds, Buyers, and the Future of Main Street AcquisitionsAn AI-Generated Podcast from the Clearly Acquired Blog Briefing (May 2025) In this episode, we unpack the major policy shifts in the SBA’s latest Standard Operating Procedures (SOP 50 10 8 and SOP 50 10 7 Clarification), effective June 1, 2025—and explore how they impact search funds, deal structuring, and Main Street business acquisitions. This AI-generated episode is based on two Clearly Acquired articles: “Major SOP 50 10 8 SBA Changes” and “SBA’s New SOP Clarification”. We dive into the SBA’s intent to modernize and streamline business acquisition lending—while also examining the unintended consequences these changes may have on investor-backed entrepreneurship through acquisition (ETA). Key Takeaways: 1. Big Wins for Borrowers: Personal Resource Test Eliminated: No longer disqualifies high-earners with liquidity. SBA will now consider “global cash flow,” including spousal income and rental earnings. Seller Notes as Equity: For the first time, seller notes can count toward the 10% equity injection—if placed on full standby for the life of the loan (max 50% of injection). CPA-Prepared Financials: When tax returns aren’t available, lenders can now accept CPA-reviewed statements—ideal for carve-outs, sole props, or new entities. 2. Tougher Rules for Search Funds & Investors: Operator Must Have Control: SBA loans now require the buyer (searcher) to maintain day-to-day control and personally guarantee the loan. Any investor control—even informal or contractual—is prohibited. No Guaranteed Returns: Structures that prioritize investor repayment (e.g., redeemable preferred stock or waterfalls) are now disallowed. Investors must take true equity risk. Co-Borrower Requirements: All owners must sign as co-borrowers; sellers with retained equity under 20% must personally guarantee the loan for at least two years. 3. Structural Shifts and Strategic Tradeoffs: Stock Purchase Mandated in Some Cases: If rollover equity is involved, the SBA will require stock deals—not asset purchases—reshaping tax and liability planning. Self-Funded Searchers Less Affected: Individuals using their own capital to search and raise deal-by-deal remain relatively untouched by these rules—but institutional models will need to adapt. Investor Support at Risk: Critics argue the SBA is misinterpreting the value investors bring (capital, mentorship, strategy), risking more failed deals and fewer exits for sellers. 4. The Bigger Picture: Systemic Misalignment: Rising business valuations aren’t matched by SBA loan limit increases. Fewer deals pencil under the new framework, potentially creating a backlog of unsellable Main Street companies. Need for Nuance: Clearly Acquired advocates for balanced solutions—like milestone-based earnouts or protective provisions that don’t infringe on borrower control. 5. Action Steps for Buyers & Advisors: Rethink deal structure early—especially if relying on investor capital. Ensure all equity is “true equity” with no disguised repayment guarantees. Leverage seller financing creatively within new limits. Build an expert advisory team to navigate compliance and maximize flexibility. Conclusion:While SOP 50 10 8 opens the door for more flexible, inclusive SBA-backed acquisitions, the clarified restrictions on investor control present challenges for traditional search funds. These changes could either streamline lending or choke off a generation of entrepreneurial dealmakers—depending on how the market adapts. This episode was generated using Clearly Acquired’s AI tools and is based on the company’s in-depth 2025 SBA SOP analysis. For the full articles, visit https://www.clearlyacquired.com/blog/major-sop-50-10-8-sba-changes-effective-june-1-2025----what-they-mean-for-business-buyers