For SBA lenders
Short answer
Lenders must perform enhanced due diligence to ensure the transaction is arm's length, the purchase price is fair, and the equity injection is genuine. This includes independent appraisals and verification of fund sources.
When a change of ownership occurs between related parties (e.g., family members, business partners, or affiliated entities), the SBA requires stricter scrutiny. Lenders must confirm the transaction is not structured to avoid the equity injection requirement, and that the purchase price reflects fair market value, often requiring a third-party valuation.
A son is buying a business from his father for $1,500,000. The lender requires an independent business valuation to confirm the purchase price is fair and documents the son's equity injection carefully to ensure it's from personal, unencumbered funds, not a gift or loan from the father.
Insider move
The main concern is ensuring the transaction is commercially reasonable and complies with all SBA regulations, particularly around eligibility and equity. Lenders look for potential conflicts of interest or attempts to circumvent SBA rules on equity or seller financing.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
More on change-of-ownership underwriting
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