SBA Loans for Buying Out a Partner
Partner buyouts are a common use of SBA 7(a) financing, but they have specific rules that differ from a standard acquisition. The structure can work cleanly — or run into eligibility issues — depending on how it is set up.
Complete vs Partial Buyout
SBA financing is generally available for buyouts where one or more remaining partners acquires 100% of the departing partner's interest. The remaining ownership group must hold 100% of the business after the transaction. Partial buyouts that leave the departing partner with continuing ownership are typically not eligible.
The 24-Month Rule
The buyer-partner must typically have been actively involved in the business for at least 24 months prior to the buyout. SBA rules around this have evolved; check current SBA SOP for specific eligibility requirements at the time of your transaction.
Valuation
A formal business valuation is required for buyouts above $250,000, just as with third-party acquisitions. The valuation must support the buyout price and the resulting debt service coverage.
Why Buyouts Are Sometimes Tricky
Inter-partner price disagreements, undocumented operating agreements, and informal historical arrangements (e.g. one partner taking distributions for years while another did not) all complicate the deal. Documented partnership agreements help significantly.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.