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It is not uncommon for borrowing entities to undergo a change of ownership following the closing and disbursement of an SBA loan. Whether such a post-closing change of ownership occurs relatively soon after the loan closing, or at a later time during the life of the SBA loan, it is important for lenders to ensure that such changes of ownership comply with the applicable SBA SOP requirements, loan documents and lender best practices.
Pursuant to SOP 50 57 4 (click here), as well as the Servicing and Liquidation Actions 7(a) Lender Matrix (click here), any change in the ownership of a Borrower’s business (including a change in the percentage of ownership) for 12 months after final disbursement on any SBA 7(a) Loan requires SBA’s prior written approval. Lenders must submit a Servicing Request for SBA’s prior written approval to the appropriate SBA Loan Center. All Servicing Requests must include the reason(s) for the Borrower’s business ownership change, details regarding the requested Loan Action and the Lender’s recommendation for Loan Action. The SBA Loan Center will review each request and make a determination after:
- Verification that the proposed changes to the ownership of the Borrower’s business complies with limitations on the maximum amount of SBA guaranteed Loans to a Borrower, including affiliates.
- Verification that there is no active delinquency on an obligation to or no prior loss to the Government caused by the new owner(s), or any business owned, operated and/or controlled by the new owner(s).
- New owners and SBA required guarantors must meet the SBA citizenship requirements in SOP 50 10 in effect at the time of the loan action.
While a change in the ownership of a Borrower’s business occurring more than 12 months after final disbursement does not require SBA’s prior written approval, lenders must still adhere to the required verifications and citizenship requirements.
Additionally, it is important that lenders confirm whether the proposed change in the ownership of the Borrower’s business will result in an event of default under the loan documents. If so, the lender should determine whether to waive the event of default and approve the requested change of ownership.
In changes of ownership resulting in the full, or partial, reduction of ownership held by a co-borrower or guarantor of the loan, lenders must not release co-borrowers or guarantors without SBA’s prior written approval. Lenders must obtain the executed unlimited, or limited, guaranties as required by the lender and/or SBA SOP 50 10 in effect at the time of the loan action.
Lenders should obtain copies of all documents related to the change in the ownership of the Borrower’s business such as:
- Stock transfer, redemption and/or issuance documents;
- Amendments to Articles of Incorporation/Organization, Bylaws, Operating Agreements, Shareholder/Member Agreements;
- Resignation letters from exiting owners;
- Resolutions authorizing the change of ownership; and
- Resolutions reflecting the removal and/or addition of officers, managers and/or Board members.
If your lending institution has questions about post-closing changes of ownership, or any other SBA lending matters, please contact us at SBAQuestions@JellumLaw.com.
This article is provided for general information and educational purposes only. It does not solicit, establish, or continue an attorney-client relationship. The contents should not be construed as legal advice or opinion. If the organization would like formal legal advice, our professional liability insurer (as well as the applicable attorney ethical rules) requires that we establish a formal attorney-client relationship. If you are interested in learning more about working with Jellum Law, please contact us at SBAQuestions@JellumLaw.com.
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