One of the most common calls I get goes roughly like this: "My partner wants to retire in six months. I want to keep the business. Can I actually use an SBA loan for that?" The answer is yes — and it's more straightforward than most borrowers assume, provided you understand the rules before you sign a letter of intent.
What SBA program covers a partner buyout?
The SBA 7(a) loan program is the primary vehicle for partner buyouts. Under SBA SOP 50 10 8, a change-of-ownership transaction — including the purchase of a co-owner's interest in an existing business — is an eligible use of 7(a) proceeds. The 504 program is not an option here; 504 is limited to fixed-asset financing (real estate and equipment), not ownership changes.
The maximum 7(a) loan amount is $5 million. For smaller buyouts, SBA Express (up to $500,000) is faster to underwrite but carries a lower SBA guaranty percentage (50% vs. 75–85% on standard 7(a)), which means lenders are more selective about using it for ownership transactions.
How much of the business do I need to own after the buyout?
After the transaction closes, you must own at least 51% of the business. That's the threshold the SBA requires for the surviving owner to qualify as the borrower on a change-of-ownership loan. If two equal partners are splitting up and you're buying the other 50%, you clear that threshold — you'll own 100%. Where it gets complicated is in multi-partner situations: if three partners each own a third and you're buying out one of them, you'd own 67% post-close, which works.
One nuance: all owners holding 20% or more after close must personally guarantee the SBA loan. If your post-buyout ownership is concentrated with you, that's straightforward. If other partners remain on the cap table at 20%+, they're on the guarantee too — get alignment on that early, because it surfaces late in the process and kills deals.
Does the departing partner have to be completely out?
This is where borrowers get tripped up. The SBA has specific rules about the seller's continued involvement post-close:
- Employment: The selling partner generally cannot remain as a W-2 employee of the business after the buyout. The SBA's concern is that ongoing employment is a mechanism for disguising seller financing or maintaining control.
- Consulting: Short-term consulting arrangements are sometimes permissible, but they require lender scrutiny and must be arms-length, time-limited, and not structured to look like deferred compensation.
- Real estate: If the departing partner owns the building the business occupies, that's a separate transaction and doesn't automatically disqualify the buyout — but the lease terms will be underwritten carefully.
If your partner wants a graceful transition period with some ongoing role, talk to your broker before the deal is structured. The lender needs to see a clean exit, not an ambiguous one.
How does the lender value the business for a buyout?
The lender needs to know what the business is actually worth before it will lend against the transaction. Expect one of the following:
- Business valuation by a qualified third-party appraiser — required on any 7(a) loan of $250,000 or more for a change-of-ownership where the buyer and seller are not at arm's length. Because partners typically know each other well, lenders almost always order an independent valuation regardless of deal size.
- The buyout price must be supported by the appraisal. If you've agreed to pay your partner $800,000 for their 50% stake but the appraisal puts the full business value at $1.2 million (implying a 50% interest worth $600,000), the lender will lend against the appraised value — not the agreed price. You'd need to cover the gap in cash or renegotiate.
The most common miss I see in partner buyouts is that the two partners have already shaken hands on a number before anyone has ordered a valuation. That number is almost always based on gut feel, not a defensible methodology. Lock down the valuation before you lock down the price.
What does the deal structure actually look like?
A standard SBA 7(a) partner buyout is structured roughly as follows:
| Component | Typical Range |
|---|---|
| SBA 7(a) loan proceeds | 80–90% of the purchase price |
| Buyer cash injection | 10–20% of the purchase price |
| Seller note (standby) | Sometimes used to bridge a gap; standby period required |
| Term | 10 years (no real estate); up to 25 years if real estate is included |
| Rate | Variable, tied to prime or SOFR; fixed options available through some lenders |
The SBA guarantee fee on a 7(a) loan above $1 million runs approximately 3.5% of the guaranteed portion, paid at closing. On a $2 million loan with a 75% guaranty, that's roughly $52,500 — a line item borrowers routinely underestimate when building their cash-to-close number.
Seller notes are permitted under SBA policy but must be on full standby for a minimum of 24 months after closing, meaning the seller cannot receive principal or interest payments during that period. If your partner needs income from the transaction immediately, a seller note won't accomplish that — the structure needs to accommodate a full cash-out at close.
What financial documentation will the lender require?
Plan on providing the following at minimum:
- Three years of business tax returns — the lender is modeling the business's ability to service the new debt from existing cash flow, not projected growth
- Year-to-date profit and loss statement and balance sheet, typically within 90–120 days
- Personal tax returns (3 years) and a personal financial statement for all 20%+ owners post-close
- Existing buy-sell agreement, if one exists — the lender will review it and flag any provisions that conflict with the proposed transaction
- Ownership documents (operating agreement, stock certificates, or partnership agreement showing current ownership percentages)
If the business has existing SBA debt, that matters. A business cannot have two SBA 7(a) loans with the same lender at the same time under standard rules, and the combined SBA exposure across all lenders for one borrower caps at $5 million. If you already carry $3 million in SBA debt, your maximum new 7(a) is $2 million.
How long does an SBA partner buyout take to close?
From signed letter of intent to funded loan, budget 60–90 days for a standard 7(a) partner buyout. The steps that consume the most time are the business valuation (typically 2–3 weeks once ordered), SBA authorization (varies by lender and whether they hold Preferred Lender Program status), and title/legal documentation on the equity transfer itself.
SBA Express can cut underwriting time for smaller transactions — some lenders turn these in 30–45 days — but the lower guaranty means fewer lenders will use Express for an ownership change without a very clean file.
Deals slip most often at the valuation stage and at the personal financial statement review. If a partner has significant personal liabilities, contingent obligations, or their own SBA exposure, the lender will want to understand the full picture before issuing a commitment.
What if the business has real estate tied to it?
If the business owns its building, the buyout can be structured to include the real estate in a single 7(a) loan (extending the term to up to 25 years) or handled as a separate transaction. Some borrowers in this situation use a 7(a) for the business equity buyout and a conventional commercial mortgage for the real estate — it depends on combined loan-to-value, cash flow coverage, and lender appetite. A broker who works both 7(a) and commercial real estate regularly can model the alternatives before you commit to a structure.