For SBA lenders
Short answer
For related party change of ownership, lenders must conduct enhanced due diligence, including a robust business valuation, strict verification of equity injection, and a thorough assessment of the transaction's arm's-length nature.
Transactions between related parties (e.g., family members, existing partners) carry a higher risk of not being arm's-length. Lenders must scrutinize the purchase price, terms, and the source and use of funds more closely to ensure the business is viable and the transaction is commercially reasonable. An independent valuation is almost always required to justify the purchase price.
A father is selling his business to his daughter using a 7(a) loan. The lender would require an independent business valuation performed by a qualified appraiser, verify all equity injection funds, and ensure the daughter has adequate experience and the business can support the debt, despite the familial relationship.
Insider move
Lenders are concerned about potential fraud, inflated valuations, or transactions designed to extract equity without genuine business purpose. Robust due diligence is essential to demonstrate adherence to prudent lending standards and avoid guaranty repairs or denials.
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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