{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-if-the-seller-is-retaining-a-small-percentage-of-ownership-e-g-5-after-the-sale","api_url":"https://dealroom.so/api/public/questions/what-if-the-seller-is-retaining-a-small-percentage-of-ownership-e-g-5-after-the-sale","question":"What if the seller is retaining a small percentage of ownership (e.g., 5%) after the sale?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"If a seller retains ownership, even a small percentage, they are generally considered an associate and must personally guarantee the SBA loan.","rule":"Any owner with 20% or more equity is required to personally guarantee an SBA 7(a) loan. Owners with less than 20% must also guarantee if the lender requires it or if they are considered essential to the business. A seller retaining ownership, even a small amount, typically falls under this 'associate' rule and will likely be required to guarantee.","example":"A buyer acquires 95% of a business, and the seller retains 5% ownership. The seller, as a continuing owner and associate, would typically be required to personally guarantee the entire SBA 7(a) loan.","what_lenders_check":"Lenders are concerned about potential conflicts of interest or undue influence by the seller, especially if they maintain an equity stake. Requiring a personal guaranty from the seller ensures alignment of interests and compliance with SBA associate guarantee rules.","required_facts":["Seller retained ownership","Associate status","Personal guaranty","Equity percentage","Conflicts of interest"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans","SBA Form 1919 - Borrower Information Form"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"},{"title":"SBA Form 1919 - Borrower Information Form","url":"https://www.sba.gov/sites/default/files/2025-03/2025.02.27%20Form%201919%20-%20Updates%20%28FINAL%29_03-12-2025%20%281%29.pdf"}],"related_questions":[{"question":"If a seller takes a fully subordinated note, can they remain an employee or consultant after acquisition?","url":"https://dealroom.so/sba-7a/questions/if-a-seller-takes-a-fully-subordinated-note-can-they-remain-an-employee-or-consultant-afte"},{"question":"For a $900,000 business acquisition, what percentage of the total required equity injection can come from a fully subordinated seller note?","url":"https://dealroom.so/sba-7a/questions/for-a-900-000-business-acquisition-what-percentage-of-the-total-required-equity-injection-"},{"question":"Can a seller who takes a fully subordinated note also remain an employee or consultant of the business after the acquisition?","url":"https://dealroom.so/sba-7a/questions/can-a-seller-who-takes-a-fully-subordinated-note-also-remain-an-employee-or-consultant-of-"},{"question":"How does an earn-out provision affect an SBA 7(a) loan for a business acquisition?","url":"https://dealroom.so/sba-7a/questions/how-does-an-earn-out-provision-affect-an-sba-7-a-loan-for-a-business-acquisition"},{"question":"What is the minimum term duration a seller note must be on full standby for an SBA loan?","url":"https://dealroom.so/sba-7a/questions/what-is-the-minimum-term-duration-a-seller-note-must-be-on-full-standby-for-an-sba-loan"},{"question":"Can interest be accrued and paid on a seller note while it is on full standby?","url":"https://dealroom.so/sba-7a/questions/can-interest-be-accrued-and-paid-on-a-seller-note-while-it-is-on-full-standby"}],"related_terms":[{"term":"7(a) Small Loan","url":"https://dealroom.so/glossary/7-a-small-loan"},{"term":"5 Cs of credit","url":"https://dealroom.so/glossary/5-cs-of-credit"},{"term":"Indemnification from the Seller","url":"https://dealroom.so/glossary/indemnification-from-the-seller"},{"term":"5 Cs","url":"https://dealroom.so/glossary/5-cs"},{"term":"Transfer of Ownership","url":"https://dealroom.so/glossary/transfer-of-ownership"},{"term":"Change of ownership","url":"https://dealroom.so/glossary/change-of-ownership"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-if-the-seller-is-retaining-a-small-percentage-of-ownership-e-g-5-after-the-sale","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}