Change of Ownership Loans in 2024
Change of Ownership Loans in 2024
Change of Ownership Loans
FY2024 (FY is SBA’s fiscal year ending 9/30/24)
Change of ownership is a business age category tracked by the SBA. The SBA has specific and different rules for each type of loan where ownership changes hands. During FY 2024 there were 627 banks funding 4,151 change of ownership loans for $4.8 billion with an average loan amount of $1,158,934.
23% of funded dollars went to change of ownership loan and 30% of funded dollars in FY2024 went to franchise change of ownership loan.
What are Change of Ownership Loans?
Individual (or newly formed business) purchasing an existing business.
Established business expanding with an acquisition of a like business.
Buying out all or part of a partner’s equity shares.
Buying into a business through a partial equity share purchase.
Asset and Stock Purchases
There are two fundamental types of acquisition: asset or stock purchase.
Asset Purchase: The majority of small business acquisitions are completed as asset purchases where buyer selectively buys specific assets, such as the customer list, equipment, or intellectual property. It's akin to purchasing only the furniture from a house—you take only what you need. Asset purchases offer more flexibility and potentially lower tax implications, allowing you to avoid unwanted liabilities.
Stock Purchase: In this approach, you acquire the entire company, including its ownership (equity shares), assets (equipment, inventory), liabilities (debts), and history. Think of it as buying a house—everything that comes with it becomes yours. SBA lending recently allows for partial stock purchases. This can be a partner buyout where part or all of their equity is purchased. It can also be a junior manager buying into the company through purchasing 5% of the equity shares. Or in a family succession plan where a family member like son or daughter purchases mom and dad’s business over time in equity tranches.
Change of Ownership SBA loans in FY 2024
627 banks funded 4,151 startup loans for 444 industries. Of these 498 were franchise funded loans for 265 different brands in 90 different industries.
SBA change of ownership loans were funded in all 50 states with borrowers from 1,890 cities. 47 states had a funded franchise change of ownership SBA loan for borrowers from 389 different cities.
Of all franchise SBA loan dollars funded over the last year 23% went to change of ownership loans.
49% of banks who funded a loan in last 12 months funded a change of ownership loan but only 13% funded a franchise change of ownership loan and only 9% if the franchise loan was over $500K.
There were 1,503 change of ownership loans which funded over $1 million with 227 franchise loans over this amount.
For FY2024 change of ownership loans represented 23% of all funded dollars and 30% of franchisee funded dollars.
Bank Experience in Acquisitions and Partner Buyouts
The need for bank experience and expertise is magnified with acquisition and expansion loans. If a bank is involved then a bank loan touches about all of the components of an acquisition. These are bigger loans, more moving parts, extensive acquisition-centric document checklist, robust SBA rules and guardrails, and different nuances and work arounds than other loan purposes.
The components of an acquisition buyers and sellers should be prepared to address are price, payment terms, post-sale consulting, contingencies, and tax allocation. Dealing with experienced lenders with acquisitions typically results in a smoother and more efficient loan process for the borrower.
Less than half of lenders funded a change of ownership SBA loan over the last year and only 13% funded a franchise change of ownership loan, and only 9% when over $500,000. LoanBox ensures acquisition loan packages are matched with experienced acquisition lenders.
Top Industries for Change of Ownership SBA Loans
FY2024: There were 444 industries having a funded change of ownership loan and 90 industries for franchise change of ownership loans.
Geography of SBA Funded Change of Ownership Loans
SBA change of ownership loans were funded in all 50 states with borrowers from 1,890 cities. 47 states had a funded franchise change of ownership SBA loan for borrowers from 389 different cities.
Top 20 Franchise Brands for Change of Ownership Loans
For all funded change of ownership loans in FY 2024 there were loans to 265 different franchise brands with an average loan amount of $1,577,191.
Out of State Lenders Dominate Change of Ownership Loans
84% of change of ownership franchise dollars are funded by out of state lenders.
72% of non-franchise change of ownership dollars are funded by out of state lenders
74% of all change of ownership funded dollars are funded by out of state lenders
77% of change of ownership franchise loans under $150K are out of state bank funded while 87% of franchise change of ownership over $1M are funded by out of state lenders.
Acquisition Lending Considerations
For an acquisition, the loan touches about every aspect of the deal. Borrower qualification, loan amount, deal and payment structures, down payments, seller financing and seller note standby and subordination, purchase agreement, collateral, business valuations, insurance, and lien requirements, to just name a few items the bank is involved with in some way.
Conventional lenders have their own set of requirements that in some cases are more lenient than the SBA and in other cases, are not. SBA has their policies and then each SBA lender adds their bank policies on top of the SBA policies. All to say acquisition lending can be confusing. LoanBox solves for this and LoanBox Advisors are available to answer your questions as well and navigate the process.
Whether you are a buyer or seller, the first step of acquisition deal due diligence should be focused on the financing component. The acquisition deal viability and structure can then be determined and developed in compliance with the financing requirements.
This article is authored by Darin Manis, founder of LoanBox.
Source: All SBA 7(a) data shared is based on all SBA lending from all sources and not from SBA lending through LoanBox. SBA data and reports are not from the SBA but from SBA data from the lending analytics platform developed and maintained by SBADNA Analytics. SBADNA and LoanBox are both owned by the same parent company FuseSync LLC. LoanBox and SBADNA does not validate or verify the data released by the SBA and provides no warranty of data accuracy or completeness.