Earlier this month, the SBA clarified its policy relating to businesses whose INVESTORS had stakes in OTHER businesses that previously defaulted on an SBA loan.
Under the previous policy, a loan applicant could be deemed ineligible if any of their investors had previously been involved—even passively—in an investment that defaulted on a federal loan and caused a loss to the government.
This made it particularly difficult for searchers and other business buyers who relied on investor backing: since their investors would routinely fall into this category, the searcher or business buyer could find themselves ineligible for 7(a) financing.
The SBA announced a DISCRETIONARY waiver for this policy, subject to a few conditions.
To be considered, the investors must:
- have held <20% of the business with the prior loss; and
- not have been a co-borrower or guarantor on the prior defaulted loan; and
- have been a passive investor (i.e. no control of the business).