Goodwill in Relation to SBA 7(a) Loans
Goodwill is an intangible asset that arises when a new owner purchases a business. Goodwill only arises when the new owner purchases the business for more than the tangible and intangible assets, minus the business’s liabilities. In general, SBA loans limit the amount of goodwill involved in a business acquisition, as the more goodwill involved in a transaction, the riskier it is for both the lender and the borrower.
The SBA’s New Acquisition Rules Loosen Restrictions on Goodwill
The SBA’s old policy for 7(a) loan business acquisitions required that loan deals involving more than $500,000 in goodwill required 25% seller note/buyer equity, while transactions with less than $500,000 in goodwill only needed to have 20% seller note/buyer equity. However, the new policy permits borrowers to acquire businesses with as little as 10% seller note/buyer equity. The buyer must still put down at least 5% equity, but the remaining 5% can come from a seller note.