SBA Rule Expansion Allows Equity Rollover

Nick Stock

A December 2024 Small Business Administration (SBA) Standard Operating Procedure (SOP) expands the SBA 7(a) procedural rules to allow equity rollover in the context of an SBA-financed asset sale. This will make 7(a) deals more attractive to buyers and sellers, especially in main street deals, who desire rollover structures used by private equity and institutional buyers.

In an equity rollover, the seller reinvests a portion of their sale proceeds into equity ownership in the new entity acquiring the business. This allows the seller to remain a partial owner and continue participating in the business’s growth post-closing.

• Buyer forms an entity specifically for the purpose of acquiring 100% of the operating company.
• The new entity can acquire the assets of the Seller rather than stock/equity, allowing buyer to step up basis to cost and carve out existing liabilities that would be inherited in a stock sale. IRC 1060 allows the parties to allocate purchase price among asset classes, considering the implications of different assets related to character of gain on disposition, and availability and timing of depreciation/amortization.
• Seller can participate in the Buyer’s business, either actively or passively, providing greater flexibility in the timing and structure of their exit.

If you have further questions about this SOP expansion and how it may affect M&A deals, please contact Nick Stock at 616.726.2255 or at nstock@fosterswift.com.

Reviewing Aspects of Business Litigation

Michigan Business Network

Dave Russell discussed legal insights on troubled assets, disputes and exit strategies in business and construction. The discussion covered numerous topics including:

• What are Troubled Assets/Troubled Projects/Business Ventures?

• What are Common Causes in Construction Projects/ Business Ventures?

• Tell us about Implementing Strong Contractual Safeguards and Exit Strategies?

• How can distressed assets/projects be preserved during litigation?