An SBA 7(a) acquisition looks like a loan application and behaves like three transactions stacked on top of each other. There is the purchase the buyer and seller negotiated. There is the credit file the bank has to approve. And there is the Standard Operating Procedure, which sits above both and decides whether the structure everyone agreed to is even eligible. A buyer can satisfy two of the three and still be sitting in month five of a sixty-day timeline.
This firm works on the legal side of those transactions, and works directly with SBA lenders while doing it. Karina Vasquez is a partner and general counsel at Forman Capital Partners, a nationwide commercial capital advisory firm, where she leads the SBA practice. Both halves matter, and they matter in a specific order.
SBA Lenders Are Not Interchangeable
The guaranty is federal and standardized. Almost nothing else about an SBA lender is. Two banks looking at the same acquisition will reach different answers on the same week, for reasons that have nothing to do with the strength of the business.
- Delegated authority. A lender with Preferred Lender Program authority makes the credit decision itself and submits to the SBA afterward. A lender without it waits in the agency's queue. On an acquisition with a closing date in the purchase agreement, that difference alone can be the whole deal.
- Industry appetite. Lenders maintain their own internal screens, and those screens move with the market. Transportation and logistics, restaurants, staffing, trucking, cannabis-adjacent businesses and anything with a licensing overlay all go in and out of favor across the lending market, independent of how the individual company performs.
- Where the file closes. Some lenders close in house with their own counsel and their own document set. Others outsource to a lender service provider. The two produce very different experiences in the last three weeks of a transaction, which is exactly when a buyer has the least room to move.
- Size and hold. A lender comfortable at two million dollars may be slow at four, and a lender that lives at seven may not open a file at one. The band a lender actually wants to be in is rarely the band published on its website.
The practical consequence is that the first real decision in an SBA deal is where the file goes, and that decision gets made before anyone has read the purchase agreement.
Why the Relationships Matter Before the File Goes Out
The firm maintains working relationships with SBA lenders across the country, including several that hold delegated authority and are among the fastest-moving lenders in the program. Those relationships were built one transaction at a time, and what they produce is information rather than favors.
Knowing which desk is taking transportation paper this quarter, which one wants the add-back schedule attached to the first submission rather than requested later, which one will accept a particular standby structure and which one will not, and which one closes in house, is the difference between a file that moves and a file that gets conditioned to death. None of that is published anywhere. It comes from having closed with those lenders before.
It also changes the documents. A purchase agreement drafted with a particular lender's closing requirements already in view does not come back with six conditions attached to it. The lender's counsel receives the file it expected to receive.
Business Acquisitions
Most of the structural decisions in an acquisition are made in the letter of intent, which is also the document buyers most often sign without counsel on the reasoning that it is non-binding. The economics may well be non-binding. The structure described in it is what the lender underwrites, and once it is in the credit memorandum it is expensive to change.
Stock or assets. Buying the entity carries its licenses, contracts, lease and tax history forward, along with its liabilities. Buying the assets leaves the liabilities behind and steps up the basis, at the cost of reassigning everything that was in the seller's name. Where the target is an S corporation, the election itself can be part of what makes the company worth buying, and whether it survives depends on how the buyer is structured. An acquisition entity sitting above the target can terminate the election, and no loan document will undo that afterward.
The equity injection. A change of ownership requires an injection measured against total project cost, so lender fees, closing costs and financed working capital all count toward the number, not just the purchase price. At least half of it has to be the buyer's own unborrowed money, traceable to its source. Lenders verify that trail with statements, and reconstructing it after the fact is one of the quieter causes of delay in these files.
Standby, not subordination. A seller note can satisfy part of the required injection, and only if it is placed on full standby for the life of the SBA loan, meaning no principal and no interest paid in the interim, documented on the agency's own standby agreement and signed by the creditor. A note that says it is subordinate to the senior debt does not qualify. Sellers frequently agree to the number and then object to the standby term when they understand it, which is a conversation that belongs at the letter of intent rather than two weeks before closing.
Valuation discipline. An independent business valuation is required above the threshold in the current SOP, and wherever buyer and seller are related. Where it comes in under the agreed price, the gap is closed with more equity, with paper on full standby, or with a price reduction. It is not closed by adding seller financing on ordinary terms, and a structure built that way will not survive review.
What the seller keeps. On a complete change of ownership the seller leaves. No shares, no officer or director seat, no employment, and no compensation arranged to look like something else. A transition role is available as an independent consultant at a stated rate within the permitted period, which handles most real transition needs. Earnouts are not available to bridge price on a complete change, because an earnout leaves the seller with a stake in the result.
Partner Buyouts
A partner buyout is a change of ownership, and the SBA treats it as one. That single fact surprises more buyers than any other rule in the program.
Where the exiting partner leaves entirely, the exit has to be complete at closing, with every office, board seat and signing authority resigned. Where an original owner remains, the transaction becomes a partial change of ownership, which has to be structured as a purchase of equity rather than of assets, and which carries its own guaranty obligations for the owners who stay.
The document that decides how hard a buyout is going to be was usually written years earlier. An operating agreement with a working buy-sell provision and a valuation mechanism makes the departure a procedure. An operating agreement with neither makes it a negotiation between people who are no longer getting along, with a lender waiting on the outcome. The buyout documents themselves are the redemption or interest purchase agreement, an amended and restated operating agreement reflecting ownership after the exit, a mutual release, a non-competition covenant from the departing owner, and the seller note placed on standby where the exiting partner is carrying paper.
Buyouts also surface the ownership defects that never mattered while everyone was still in the room. A partner who left years ago and was never formally bought out. A percentage promised in conversation and recorded nowhere. A K-1 that disagrees with the operating agreement. Each of those becomes an underwriting condition, and each of them is cheaper to correct before the application goes in than after.
Owner-User Real Estate
Where the deal includes the building, the real estate adds a second structure on top of the acquisition. The property is commonly held in a separate entity that leases to the operating company, and the SBA has its own requirements for that arrangement. The operating company has to occupy 51 percent of an existing building, or 60 percent of new construction. The lease between the two entities has to be written to the term and assignment provisions the lender requires rather than to whatever was convenient for the owner's accountant. Tenants who remain in place need subordination and attornment agreements, and the title work, survey review and environmental screen all run on the same schedule as the business diligence.
The 504 program covers owner-occupied real estate and long-life equipment at longer terms through a bank first mortgage behind a CDC second, and its debt refinance track can take out qualified existing debt without an expansion. What it cannot do is put cash in an owner's pocket, which is a question worth asking at the start rather than after an application is in.
A Transportation Acquisition That Was Not Financeable When It Arrived
A buyer came to the firm on the purchase of a Midwest transportation and warehousing company. He had been told the file was ready to go to lenders. It was not close.
The earnings presented in the operating statements did not reconcile to the filed tax returns, and a lender receives both. The equity injection existed on paper with no identified source behind it. The acquisition was structured through a holding company, which would have terminated the target's S corporation election at the closing and taken part of the reason to buy the business along with it. The seller's note had been agreed as ordinary subordinated financing, which does nothing toward the required injection. And the company was in transportation, a sector most SBA desks had quietly stopped taking after four years of freight recession, carrier exits and operating margins that went negative across the industry.
Sent out in that condition, the file gets declined on the industry before anyone reads the numbers, and every decline makes the next submission harder.
What the file actually needed
Karina took it apart and gave the buyer the list, item by item, of what had to exist before the deal could be submitted anywhere. That is a different conversation from the one most buyers get, which is a request for more documents and no explanation of why the file is not working.
The earnings had to be defensible. Adjusted earnings sat below the prior year's unadjusted figure, which cannot be true on a single basis and is the first thing a credit officer catches. The number was rebuilt on a documented add-back schedule, item by item, so the trailing figure could be defended against the returns rather than asserted.
The injection had to exist and be traceable. Partners were brought into the acquisition so that the required equity was real, sourced and documented back to statements, with a portion of the seller's paper restructured onto full standby for the life of the loan so it counted toward the injection instead of sitting behind the senior debt doing nothing for the credit.
The entity structure had to stop destroying value. The purchase was restructured so the buyers acquire as individuals rather than through an acquisition entity, because that is what keeps the target's S election alive through the closing. That decision had to be made before the purchase agreement was drafted. After closing there is no document that fixes it.
The credit had to stand on the trailing numbers. The growth plan was real, and it was also the kind of projection that invites a credit officer to ask for proof of a jump nobody can yet evidence. Coverage was presented on trailing earnings, with the projections carried separately as upside the loan does not depend on. A file that asks a lender to underwrite the past and shows the future as a bonus gets a different reading than one that needs the future to work.
Where it went
Rebuilt that way, the transaction was placed with a lender whose book is concentrated in hospitality rather than transportation, and the file was read on the company's own facts rather than on its sector. The argument that made it possible came out of the numbers themselves. Through the worst four years the freight market has had, this company's peak-to-trough revenue variance was under nine percent and it was profitable in every one of them, which is the signature of a contract and dedicated book rather than spot exposure. That is a case a credit officer can take to committee, and it did not exist in the file as it arrived.
Matters are described here generally and without identifying information. Every transaction is different, and prior results do not guarantee or predict a similar outcome in any other matter.
What Actually Delays These Closings
Across files, the same handful of items account for most of the lost time. A purchase agreement drafted in the wrong form for the structure. A seller note signed before anyone drafted the standby. An equity injection that cannot be traced. Corporate records that do not establish who can sign. Liens still showing on a UCC search because nobody filed the terminations when the debt was paid. A lease with a term shorter than the loan. Licenses held personally by a seller who is about to leave.
None of these are hard legal problems. All of them are weeks, and weeks are what kill a transaction with a closing date in it and a seller who is starting to wonder.
Rules That Keep Moving
The Standard Operating Procedure is amended regularly, and the change of ownership rules in particular were revised in 2025 and again in 2026, including the equity injection requirements and the eligibility test applied to every direct and indirect owner of the borrower. The version that governs a file is the one in effect when the loan is numbered. Anything written against last year's rule is worth rereading, and any advice that does not name a version is worth a second look.
What the Firm Does on These Matters
The firm handles the legal side of an SBA transaction from the letter of intent through the closing table. That covers the purchase agreement in whichever form the deal calls for, the seller note and its standby agreement, the buyer's entity and operating or shareholder agreement, the equity injection documentation, the leases and landlord agreements, the lien clearance, the corporate record, and closing coordination with the lender's counsel and the title or escrow agent. Details of that engagement are set out on the SBA funding page.
Where a company is preparing to borrow and wants its file reviewed before anything is submitted, that is a Funding Readiness Review. Where the underlying records need to be built or corrected first, that work runs through corporate and business law. Companies that would rather have this review standing than once engage the firm as outside general counsel.
This article is provided for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship with KVasquez Law. The SBA Standard Operating Procedure, regulations and individual lender requirements change, and outcomes depend on the specific documents and the facts of each matter. Lender relationships described here do not guarantee approval, pricing, speed or any particular result. Consult a qualified attorney about your circumstances before acting.