With its release today of SOP 50 10 5(B), the U.S. Small Business Administration dramatically altered its requirements regarding goodwill financing.  The current rules, which were implemented on March 1, 2009, restricted lenders' ability to finance goodwill under the 7a program to the lesser of 50% of the purchase price or $250,000, whichever is less.
 
The new rules released today significantly modify the existing rules.  In summary, the new rules provide that if the purchase price of a business includes intangible assets (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks, and agreements not to compete) in excess of $500,000, the borrower must provide an equity injection of at least 25% of the purchase price of the business to process the loan under PLP delegated authority.  The new regulations further provide that the borrower's equity can be any combination of a direct contribution from the borrower and a seller note that is on full standby for minimum of two years.  The new SOP provides that exceptions to this new policy may still be submitted under CLP or GP processing for approval.
 
"Under this new goodwill policy, the financing of business acquisitions should become easier for borrowers and sellers and the SBA's requirements will be more transparent for lenders" said David Starfield, Managing Partner of Starfield & Smith, reacting to the newly released goodwill policy.  "I think this will be a real shot in the arm for the SBA lending industry, at a time when our economy desperately needs it," he added.
 
The newly released SOP 50 10 5(B) will go into effect October 1, 2009.  For more information on the revised SOP, contact the author at 215-542-7070 or esmith@starfieldsmith.com.

 

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