The SBA business acquisition rules changed on October 1, 2026, and if you plan to sell your plumbing, HVAC, electrical or landscaping company to a buyer using an SBA 7(a) loan, the new rules decide what your books have to show. Under SOP 50 10 8.1 the buyer's lender needs three years of financial statements checked against IRS transcripts, a debt service coverage of at least 1.25 to 1 on your earnings, a 10% equity injection from a buyer new to the business, and a valuation it commissioned itself once the price passes $350,000. Your seller note only counts toward the buyer's down payment if you agree to take nothing on it for the life of the SBA loan. Earnouts are out.
In short
- October 1, 2026: SOP 50 10 8.1 applies to every 7(a) and 504 application issued an SBA loan number on or after that date (SBA, 2026).
- 1.25 to 1: the minimum debt service coverage for an initial acquisition or owner buyout, against 1.15 for a business expansion (SBA, 2026).
- $350,000: above this purchase price the valuation must come from an accredited, independent appraiser working for the lender (SBA, 2026).
- Half: the most that seller standby debt and other limited sources can supply of the buyer's required 10% injection (SBA, 2026).
Who the new rules apply to
The SBA's Information Notice 5000-880695, published August 14, 2026, says SOP 50 10 8.1 applies to "all applications that are issued an SBA loan number on or after" October 1, 2026. The date that matters is when the buyer's lender gets the loan number, not when you shook hands. A deal still in negotiation this week falls under the new rules.
The change-of-ownership rules now sit in Appendix 15 of the SOP, which sorts every sale into four types: Initial Acquisition, Business Expansion, Owner Buyout, and ESOP and Cooperative. A retiring owner selling to an outsider is usually in the first. Selling to a long-serving employee can be an Owner Buyout, which has its own rules: the SOP says a person must have worked for the business for at least 24 months to be treated as an existing employee.
What the buyer's lender will ask of your books
Three years, verified. The lender's analysis "must be based on the three most recent year-end historical financial information," using the best level of reporting available, from audited statements down to corporate tax returns. It must also check those returns against IRS transcripts, and compare your current interim statement with the same period last year.
Coverage on your real earnings. The SOP measures historical coverage as EBITDA divided by the combined debt service after the sale, from the last fiscal year or an average of the last two. An initial acquisition needs 1.25 to 1. A business earning $250,000 in EBITDA can therefore carry about $200,000 a year of total debt payments on the buyer's side. Projections cannot fill a gap, except for owner-occupied special purpose property.
Add-backs have to survive a stranger. On a sale of $3 million or more to a new owner, the lender must also obtain a quality of earnings report, which Doeren Mayhew notes must include a cash proof over the trailing 12 months and the last two fiscal years. Below that size there is no QoE requirement, but the same questions get asked in the valuation: which truck, phone and family wages are really personal, and can you show it.
The valuation you paid for may not count
This rule is easy to miss. Above a $350,000 purchase price, the business valuation must come from a qualified source, "requested by and prepared for the Lender." The SOP adds: "The Lender may not use a business valuation prepared for the Applicant or the seller."
So a valuation you commission to set your asking price is still useful. It tells you what you have. It will not be the one the bank relies on. If the price agreed exceeds the lender's valuation, "the difference must be made up by equity," which in practice means the buyer brings more cash, you take less, or the deal stalls.
At $350,000 or less the lender may value the business itself, unless buyer and seller have a close relationship. For a smaller trades business priced in that range, the rule makes the deal simpler, not harder.
Seller notes, earnouts and staying on
| Term | What SOP 50 10 8.1 says |
|---|---|
| Seller note as equity | Only if subordinated and on full standby, no principal or interest for the SBA loan's term |
| Limit on standby sources | No more than half of the required injection |
| Refinancing a seller note | Eligible after 36 months in place and current |
| Earnouts | Prohibited; buyer rebates tied to performance are allowed |
| Staying on after the sale | Consultant only, no more than 24 months in aggregate, for an initial acquisition |
| Total debt | Limited to the business valuation, including seller debt not on standby |
The practical reading for a seller: if you carry paper, expect a note that pays nothing for the full term of the SBA loan, or a smaller note that is not counted as the buyer's equity and has to fit inside the 1.25 coverage. Neither is wrong. You should know which you are agreeing to before the letter of intent.
Five things to do before you list
- Pull three years of returns and your IRS transcripts. Check that they match. If they do not, find out why before a lender does.
- Separate personal costs on paper. List every add-back with the receipt or the payroll record behind it.
- Reconcile deposits to revenue. A cash proof compares bank deposits with reported sales. Do your own version first.
- Get a value for yourself, knowing it is yours. The Michigan Small Business Development Center offers sellers valuation tools, deal-structure guidance and consulting. Use that to price the business; expect the lender to order its own.
- Decide what you want after closing. Two years of consulting at most, no ownership and no earnout, for an outside buyer on SBA money. If you want more, it is a different deal.
The mistake most sellers make at step 3
They assume the tax return is the record. A lender reconciling your deposits will find cash jobs that were never invoiced and invoices that were never deposited in the same account. Both lower the earnings the lender will count, and at 1.25 coverage every dollar of EBITDA supports only 80 cents of annual debt payments. The records that matter are the ones kept every day: jobs, invoices, payments and payroll in agreement. Our note on the 1099-NEC threshold for 2026 covers the subcontractor side of the same file.
Where the office work fits
Keeping jobs, invoices and payroll in one consistent record is back-office work we build for service businesses, and it pays off long before a sale. We do not value businesses, broker sales or arrange financing; the lender and your advisers do. More on running a Michigan service business is on our services page.
The buyer's lender reads your books the way a stranger would. Read them that way first.
