Multi-step partial changes and the EPC restriction
Last updated
Quick Answer
Structuring a buy-in through a new holding entity that ends up owning 100% is not eligible for 7(a) financing.1
What it is
The SOP treats a multi-step partial change — where a newly formed holding entity acquires the whole business in stages — as ineligible rather than as a permitted structure. Separately, 7(a) may not fund a partial change of ownership in an Eligible Passive Company under 13 CFR 120.111; only in the operating company of an EPC/OC structure.1
Operational context
What good looks like
Why It Matters
Buy-in structures get designed by lawyers and accountants optimizing for tax and control, and this is the constraint that most often invalidates a clean-looking one late in the process. Check it before the structure is papered, because the alternative is re-negotiating a deal that everyone thought was agreed.1
Term Family
Frequently Asked Questions
What is Multi-step partial changes and the EPC restriction in venture capital?
The SOP treats a multi-step partial change — where a newly formed holding entity acquires the whole business in stages — as ineligible rather than as a permitted structure. Separately, 7(a) may not fund a partial change of ownership in an Eligible Passive Company under 13 CFR 120.
Why is Multi-step partial changes and the EPC restriction important for startups?
Understanding Multi-step partial changes and the EPC restriction is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.A1-06 — SBA SOP 50 10 Version 8, eff. 2025-06-01 (.docx)SBA SOP 50 10 Version 8, eff. 2025-06-01 (.docx)Gov / statistical primary(Structuring a buy-in through a new holding entity that ends up owning 100% is not eligible for 7(a) financing.)primary · A1 · operating-compliance · rule
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