Partial change of ownership - and why every new owner is a co-borrower
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Quick Answer
In a partial change of ownership every new direct or indirect owner becomes a co-borrower, regardless of the percentage acquired.1
What it is
A partial change of ownership is permitted where at least one of the original owners remains an owner after the sale. The condition attached to it is that the operating company and every new direct or indirect owner must be co-borrowers on the loan, irrespective of how small the acquired stake is.1
Operational context
What good looks like
Why It Matters
It is a personal-liability fact wearing the clothes of a structuring detail. Someone buying into a business alongside a continuing owner may reasonably expect their exposure to scale with their stake; on a 7(a) partial change it does not. Anyone joining the cap table under this structure needs to understand what they are signing before closing, not after.1
Term Family
Related concepts
Frequently Asked Questions
What is Partial change of ownership - and why every new owner is a co-borrower in venture capital?
A partial change of ownership is permitted where at least one of the original owners remains an owner after the sale. The condition attached to it is that the operating company and every new direct or indirect owner must be co-borrowers on the loan, irrespective of how small the acquired stake is.
Why is Partial change of ownership - and why every new owner is a co-borrower important for startups?
Understanding Partial change of ownership - and why every new owner is a co-borrower 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(In a partial change of ownership every new direct or indirect owner becomes a co-borrower, regardless of the percentage acquired.)primary · A1 · operating-compliance · rule
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