The new rulebook is Appendix 15

On October 1, 2026, SBA Standard Operating Procedure 50 10 8.1 took effect for 7(a) and 504 loans. SBA published the final version with technical updates on September 25. Information Notice 5000-882227 says it applies to applications SBA receives on or after October 1. Applications submitted through September 30 stay under SOP 50 10 8.

For acquisition buyers, the change sits in one place. Appendix 15, “7(a) Changes of Ownership,” now governs every acquisition loan, and the SOP says that if any other section conflicts with it, Appendix 15 wins.

My call: for first-time buyers, this is the biggest tightening in years. The headline equity number didn’t move. The coverage test and the diligence requirement did, and the room for seller financing got smaller. If you’re shopping for a business this winter, rebuild your model before you sign an LOI.

Four kinds of deals, four sets of rules

Every 7(a) change of ownership now falls into one of four categories, and the lender has to record which one in SBA’s system.

  • Initial Acquisition. The deal produces a new majority or largest owner who wasn’t already an owner, or who has worked at the business for fewer than 24 months. This is the default. If a deal doesn’t clearly fit another category, it lands here.
  • Business Expansion. An existing business with at least two full fiscal years under current ownership buys 100% of another business in the same four-digit NAICS Industry Group.
  • Owner Buyout. The ownership changes among existing owners or employees with at least 24 months at the business, with no new company acquired.
  • ESOP and Cooperative. An employee stock ownership plan or co-op buys at least 51%.

The numbers, straight from the SOP

Equity: 10%, and for first-time buyers it can’t be waived. Initial Acquisitions need a minimum 10% equity injection based on total project cost, and the SOP says it “cannot be reduced or eliminated.” Business Expansions and Owner Buyouts also start at 10%, but the lender may reduce or eliminate it if the buyer has enough liquidity and working capital, didn’t have negative net worth at the last fiscal year-end, and takes no dedicated permanent working capital in a 7(a) term loan within 90 days.

Where the equity can come from matters as much as the amount. “Limited” sources may provide no more than half of the required injection. Those are full-standby seller notes, other standby debt and non-controlling minority investors (under 20%, no control). The rest has to come from “unlimited” sources: unborrowed cash, a gift, a personal loan to a guarantor that is repaid from outside the business, grants with no repayment strings, or verified prepaid expenses.

Debt service coverage: 1.25x for most deals. The minimum is 1.25:1 for Initial Acquisitions, Owner Buyouts and ESOP or co-op deals, and 1.15:1 for Business Expansions. Historical coverage is EBITDA divided by total debt service after the deal, measured on the last fiscal year or the average of the last two. The lender can make documented adjustments, but it can’t rely on post-closing projections to meet the test, except in a narrow carve-out for special-purpose property. Under SOP 50 10 8, the standard was 1.15, and a change of ownership could be underwritten on projections.

Earnings audit at $3M or more. For Initial Acquisitions and Business Expansions with a Business Purchase Price of $3 million or more, the lender must get a quality of earnings (QoE) report in addition to the business valuation. The threshold is measured before equity or seller financing and excludes owner-occupied real estate. The QoE has to be independent, done for the lender’s benefit, and “not be prepared by or for the seller.” It must include a cash proof that ties bank statements to the income statement and tax returns for the trailing 12 months and the last two fiscal years. The lender must use the QoE earnings in the coverage test. If you already paid for your own QoE, the lender can use it after one of its vendors reviews it. Owner Buyouts and ESOP or co-op deals are exempt.

A brass balance scale with coins on one pan and sealed envelopes on the other
Coverage is a scale, not a story: historical earnings have to outweigh debt service at 1.25x for most first-time deals.

What the new math does to a deal

Take a first-time buyer looking at a $2.6 million total project.

  • Equity: 10% is $260,000. At most $130,000 of that can be a full-standby seller note. At least $130,000 has to come from unlimited sources, such as your own cash or a gift.
  • Coverage: if annual debt service after closing is $400,000, the business needs $500,000 of historical EBITDA at 1.25x. At 1.15x it would have needed $460,000. That $40,000 gap means a lower price or a smaller loan.
  • QoE: a $3.4 million contract that includes an owner-occupied building appraised at $600,000 has a Business Purchase Price of $2.8 million, so the mandatory QoE doesn’t apply. Raise the business portion to $3 million and it does.

Seller notes and earnouts won’t save the structure

Buyers hoping to bridge the gap with seller notes and earnouts will find most of that door closed. Some of these rules aren’t new. What changed is that they now stack.

  • Earnouts: seller earnouts are prohibited. That was already true under SOP 50 10 8.
  • Seller notes as equity: a seller note counts toward the injection only if it’s on full standby for the life of the 7(a) loan, meaning no principal or interest payments. The old SOP had the same rule and the same half cap. The new part is that the half cap now covers all limited sources combined, including other standby debt and minority investors.
  • Seller notes that pay: a note that isn’t on full standby counts in the coverage test, and total debt, seller paper included, can’t exceed the business valuation. If the price is above the valuation, the gap has to be filled with equity or more full-standby money.
  • Interest-only seller paper: any acquisition debt that isn’t on full standby and pays interest only gets amortized over no more than 10 years for the coverage math.
  • The seller’s exit: in Initial Acquisitions and Business Expansions, the seller can stay on only as a consultant, for up to 24 months total. The old limit was 12.

If the price only works with a paying seller note, the price is too high under these rules. Owners building an exit strategy should plan for that too, because seller paper that pays now counts against the buyer’s coverage.

Serial acquirers get a different lane

If you already own and operate a business, the Business Expansion category is the one to aim for. You need two full fiscal years under current ownership, a 100% purchase in the same four-digit NAICS Industry Group, and at least as many full personal guarantors as before. In exchange you get 1.15x coverage and an equity requirement the lender can reduce or waive. Buying outside your industry group puts you back in Initial Acquisition rules.

FAQ

When do the new SBA acquisition rules apply? SOP 50 10 8.1 applies to applications SBA receives on or after October 1, 2026. Applications submitted through September 30 stay under SOP 50 10 8.

Is the 10% equity requirement new? The level isn’t. SOP 50 10 8 also required 10% for a complete change of ownership. What’s new is the four-category split and the rule that the 10% for an Initial Acquisition “cannot be reduced or eliminated.”

Can a seller note count toward my equity injection? Only if it’s on full standby for the life of the 7(a) loan, with no principal or interest payments. Limited sources, including full-standby seller notes, can cover no more than half of the required injection.

Do I need a quality of earnings report under $3 million? SBA doesn’t require one below a $3 million Business Purchase Price. My advice is to get one anyway, because the lender is going to test the same numbers.

Bottom line

The SBA didn’t raise the equity headline. It made first-time buyers prove the earnings, cover the debt at 1.25x on historical results instead of projections, and bring unlimited-source money, like their own cash or a gift, for at least half the injection. My advice to search-fund and “buy a boring business” readers: get a QoE even under $3 million, because the lender is going to test the same numbers anyway. Model coverage at 1.25x on trailing results, and put post-closing debt service on your 13-week cash meeting agenda from day one. Assume any seller note sits on full standby. If it still works, it’s probably a good deal. If you see a structure these rules miss, I’d like to hear it.

Sources

Written by

Ken Koo

Partner at Force Scaling

Partner at Force Scaling, helping CEOs and leadership teams turn ambition into operating discipline and results.

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