"Make it 50-50 and I'm in." Kai (a made-up investor) was ready to buy out a departing co-founder with an SBA 7(a) loan. The lender ran the numbers and said the deal would need $60,000 of cash it couldn't waive. At 49%, that same $60,000 could be cut to zero.
This is general information, not legal or financial advice. Confirm every rule against the current SOP and your lender before you sign anything.
The one tip
You can use a 7(a) loan to buy out a co-owner. SOP 50 10 8.1 (effective October 1, 2026), Appendix 15, calls this an Owner Buyout. At least one original owner has to stay in and guarantee the loan.
The line that matters: if the buyer hasn't worked at the business for at least 24 months, they can only end up with less than 50% of the equity, and they can't become the largest shareholder. Indirect stakes through a holding company or trust count too. Cross that line and the lender has to use the tougher Initial Acquisition credit standards.
Why that costs money:
Owner Buyout: the equity injection is 10% of the purchase price, and the lender may reduce or waive it if the business has enough cash and working capital and didn't show a negative net worth at its last fiscal year-end.
Initial Acquisition: the 10% injection can't be reduced or waived.
Both need debt service coverage of at least 1.25 to 1, measured on the last fiscal year or the average of the last two.
Worked example
Mira and Dev (both made up) each own 50% of Larkspur and Vane Studio (a made-up design firm). Dev wants out. An accredited appraiser values his half at $600,000. Kai, a friend who has never worked there, will buy in. He has $15,000 saved.
Plan A, Kai takes Dev's full 50%. Kai hasn't been employed there for 24 months, and 50% isn't less than 50%. Initial Acquisition standards apply, so an injection of at least $60,000 is locked in. Kai can't cover it, and the deal stalls.
Plan B, Kai buys 49% and Mira buys 1%. Kai ends up with 49% and Mira with 51%, so Kai isn't the largest owner. It stays an Owner Buyout. The studio has positive net worth and about $90,000 in the bank, so the lender agrees to waive the injection. That waiver is the lender's call, not a right.
Coverage: assume 10.5% over 10 years (an assumption for the math, not a quote). A $600,000 loan runs about $8,096 a month, or $97,153 a year. Add $24,000 of other yearly debt payments and total debt service is $121,153. With $160,000 of EBITDA, coverage is 1.32. That clears 1.25.
Two catches. Every new owner in a partial change has to be a Co-Borrower, so Kai is one. At 49% he also signs an unlimited personal guaranty, like Mira. And because the injection was waived, the lender can't add dedicated permanent working capital to this or any other 7(a) term loan for 90 days.
Do this week
Write down every owner's stake after the deal, direct and indirect. Flag anyone at 50% or more, or anyone who'd be the biggest owner.
Check whether each new owner has worked at the business for at least 24 months, and keep the payroll records that show it.
Pull your last fiscal year-end balance sheet. A negative net worth rules out the injection waiver.
Ask the lender, in writing, whether they'll reduce or waive the 10% for an Owner Buyout, and what cash balance they want to see.
If the price is over $350,000, or the buyer and seller have a close relationship, budget for an independent valuation the lender orders from an accredited appraiser. If the price beats the valuation, the gap has to come from equity.
Run coverage at a realistic rate. If it's under 1.25, trim the price or put more cash in before you apply.
Sources: SBA SOP 50 10 8.1 (with Technical Policy Updates, effective October 1, 2026), Appendix 15 (7(a) Changes of Ownership: Owner Buyout and Partial Change, equity requirements, business valuation, debt service coverage, 10-year amortization), https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs ; 13 CFR 120.202 (loans for changes of ownership), https://www.ecfr.gov/current/title-13/section-120.202 ; 13 CFR 120.160 (guaranties), https://www.ecfr.gov/current/title-13/section-120.160 ; SBA 7(a) loans overview, https://www.sba.gov/funding-programs/loans/7a-loans
Verified against SOP 50 10 8.1 text: October 18, 2026.
FAQ
Can I use an SBA 7(a) loan to buy out my business partner?
Yes. SOP 50 10 8.1 calls it an Owner Buyout. At least one original owner has to stay in and guarantee the loan.
What is the 24-month rule for SBA owner buyouts?
A buyer who hasn't worked at the business for at least 24 months can only end up with less than 50% of the equity and can't be the largest owner. Otherwise, Initial Acquisition credit standards apply.
How much down payment does an SBA partner buyout need?
10% Of the purchase price. The lender may reduce or waive it if the business has enough liquidity and working capital and no negative net worth at its last fiscal year-end.
What DSCR does an SBA owner buyout need?
At least 1.25 to 1, using the last fiscal year or the average of the last two years.
Does a new partner have to sign the SBA loan?
Yes. In a partial change of ownership, every new owner is a Co-Borrower, whatever their stake. Anyone at 20% or more also gives an unlimited personal guaranty.
How long can an SBA buyout loan be?
Up to 10 years of amortization, unless the deal also includes owner-occupied real estate under the SOP's blended or separate-loan rules.