Using an SBA Loan for a Partner Buyout or Partial Change of Ownership

Why partner buyouts are their own category

Partnerships end for ordinary reasons: retirement, a change in goals, a disagreement, a death or a disability. When one owner wants out and the other wants to keep going, an SBA 7(a) loan is a common way to fund the buyout, because it allows a long repayment period and can finance goodwill.

The current SBA rulebook, SOP 50 10 8.1 (effective October 1, 2026), sorts changes of ownership into four types: initial acquisition, business expansion, owner buyout, and ESOP or cooperative. An owner buyout is a change in the ownership structure of an existing business that doesn’t involve acquiring another company or its assets, and at least one original owner must stay and guarantee the loan. The lender documents why your deal fits the category; if it doesn’t, it defaults to an initial acquisition, with stricter standards.

If you’re buying a business from an outside seller instead, read buying a business with an SBA loan.

Full buyout or partial change?

Owner buyouts come in two forms.

Existing-owner buyout. The remaining owners end up owning 100%. That can happen three ways under the current rules:

1. Current owners or employees buy the departing owner’s entire interest. They must have been actively involved in the business for at least the last 24 consecutive months, and they sign as co-borrowers with the business.
2. The business itself redeems the departing owner’s interest.
3. A sole owner sells 100% to an individual who has worked in the business for at least 24 months before the application.

Partial change of ownership. A new owner comes in, or one owner sells part of their stake, and at least one original owner stays and guarantees the loan. The rules here are the ones most people don’t expect:

• Every new owner is a co-borrower, whatever the size of their stake, even a very small one. New indirect owners (through a holding company, for example) must also personally guarantee.
• The selling owner may stay as an owner, officer, director or employee.
• A selling owner who keeps less than 20% must give a full guaranty of the entire loan for at least two years after final disbursement, and can be released only if the loan has been current for the 12 consecutive months before release.
• Multi-step structures aren’t eligible. If the existing and new owners form a new company that will own the operating business, the transaction doesn’t fit.

The 24-month test for new owners

There’s a guardrail on who can buy in under the owner-buyout rules. Individuals who haven’t been employed by the business for at least 24 months may acquire less than 50% of the equity and may not become the largest owner. If the deal doesn’t meet that, the lender has to apply the initial-acquisition standards for coverage, equity and quality of earnings, though the seller can still stay on as an owner and employee. Indirect ownership through entities or trusts is added together for this test.

Equity: based on the price, and sometimes waivable

For an owner buyout, the minimum equity injection is 10%, calculated on the purchase price in the purchase and sale agreement, not on a larger project cost. Unlike an initial acquisition, the lender may reduce or eliminate it if it determines the business has enough liquidity and working capital to keep operating after the transaction. To be eligible for that, the business’s balance sheet must not show a negative net worth at its last fiscal year-end.

There’s a catch: if the equity requirement is waived, the lender can’t include dedicated working capital in that loan or any other 7(a) term loan for a period afterward, and any working capital the deal needs must come from existing cash or a line of credit. The logic is that a business strong enough to skip the equity is strong enough not to need new working capital. Equity injection and seller notes covers what counts as equity in general.

Coverage and diligence

The business still has to carry the new debt. For owner buyouts, the minimum debt service coverage under the current rules is 1.25 to 1, measured on the last fiscal year-end or an average of the last two. Remember that the buyout loan is new debt the business didn’t have before, and the departing partner’s salary may or may not go away, depending on whether they stay. DSCR in plain English explains the ratio.

A business valuation is still part of the financial due diligence, and the price has to be supported by it. On smaller deals a lender can sometimes value the business itself, but not where buyer and seller have a close relationship, and the SOP gives transactions between existing owners as an example of one. Expect an independent valuation. A quality-of-earnings report is not required for owner buyouts, because the remaining owners already know the business.

Common snags

• Buy-sell agreement pricing that doesn’t match what a valuation supports. If the agreed price is above the valuation, the gap must come from equity.
• A new partner who isn’t ready to be a co-borrower. In a partial change, that’s not optional.
• The departing partner’s guaranty. A partner keeping a small stake may not expect to guarantee the full loan for two years.
• Holding-company structures set up before anyone called a lender.
• Existing debt being refinanced as part of the deal, which brings its own rules.

Next steps

Settle the price, who will own what afterward, and whether the departing partner stays, then talk to a lender before you sign the buyout agreement. Run the coverage in the acquisition calculator and read about how lenders calculate cash flow. If you’re planning a buyout, tell us about it. We’ll lay out how it could be structured, including options that aren’t an SBA loan.