SBA 7(a) Q&A
Short answer
In a cross-purchase agreement, owners buy policies on each other and purchase the deceased's shares, while in an entity-purchase (redemption) agreement, the business buys policies on owners and redeems the deceased's shares.
Cross-purchase agreements involve each owner buying a policy on every other owner, becoming the beneficiary. Upon death, the surviving owners use the death benefit to buy the shares directly. Entity-purchase agreements have the business itself buy policies on each owner, and the business uses the death benefit to buy back the deceased owner's shares, reducing the outstanding shares.
Cross-purchase: Partner A buys a policy on B, B buys on A. Entity-purchase: The company buys policies on A and B. If A dies, the company uses the payout to buy A's shares from A's estate.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of business life-insurance and SBA collateral-insurance practice (SOP 50 10 8). Not insurance, legal, or tax advice. 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.
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This page answers “What are the key distinctions between cross-purchase and entity-purchase buy-sell agreements?” for SBA 7(a) business buyers — a short answer, the detail, and official sources — from DealRoom.so SBA Intelligence. It is general information, not legal, tax, or financial advice, and DealRoom is not a lender.
Source: DealRoom.so SBA Intelligence, based on public SBA, lender, franchise, FDIC, and related records. DealRoom is not a lender and does not guarantee financing.
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