SBA 7(a) Q&A
Short answer
To prove an arm's length transaction, documents typically include a comprehensive buy-sell agreement, an independent business valuation, and clear financial statements supporting the purchase price and terms.
The SBA requires that all change of ownership transactions, including partner buyouts, be conducted on an arm's length basis, meaning terms are fair and reasonable as if between unrelated parties. Documentation such as a formal purchase agreement, an independent valuation to justify the purchase price, and evidence of negotiation are essential to demonstrate this.
When buying out a partner, you would provide a detailed purchase agreement, an independent business appraisal report justifying the $400,000 purchase price, and possibly correspondence or minutes showing negotiation of terms, to assure the lender it's an arm's length deal.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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.
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