Conditions for financing a change of ownership of a Small Business.

CFR · 2024-01-01 · US · Title 13

You may finance a change of ownership of a Small Business only under the conditions set forth in this section. (a) The Financing must: (1) Promote the sound development or preserve the existence of the Small Business; (2) Help create a Small Business as a result of a corporate divestiture; or (3) Facilitate ownership in a Disadvantaged Business. (b) The Resulting Concern (as defined in paragraph (c) of this section) must: (1) Be a Small Business under § 107.700; (2) Have 500 or fewer full-time equivalent employees; or meet one of the appropriate debt/equity ratio tests: (i) If you have outstanding Leverage, the Resulting Concern's ratio of debt to equity must be no more than 5 to 1; or (ii) If you have no outstanding Leverage, the Resulting Concern's ratio of debt to equity must be no more than 8 to 1. (c) (2) For purposes of this section, “debt” means long-term debt, including contingent liabilities, but excluding accounts payable, operating leases, letters of credit, subordinated notes payable to the seller, any other liabilities approved for exclusion by SBA and short-term working capital loans (so long as the loans carry a zero balance for 30 consecutive days during the concern's fiscal year). (3) For purposes of this section, “equity” means common and preferred

official document · source cfr-2024 · id 13:§ 107.750