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The valuation cap on change-of-ownership proceeds

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Quick Answer

7(a) proceeds for a change of ownership are capped at the business valuation amount.1

What it is

The maximum use of 7(a) proceeds on a change of ownership is the valuation figure, not the figure in the purchase agreement. Where the agreed price exceeds the valuation, the difference has to come from somewhere else, and whatever fills it must be subordinate to the 7(a).1

Operational context

What good looks like

Why It Matters

It is the mechanism that turns a negotiated price into a financing structure. A gap between price and valuation is usually closed with a standby seller note or additional buyer equity, and both of those decisions change what your first year looks like — one removes the seller's incentive, the other removes your cushion.1

Frequently Asked Questions

What is The valuation cap on change-of-ownership proceeds in venture capital?

The maximum use of 7(a) proceeds on a change of ownership is the valuation figure, not the figure in the purchase agreement. Where the agreed price exceeds the valuation, the difference has to come from somewhere else, and whatever fills it must be subordinate to the 7(a).

Why is The valuation cap on change-of-ownership proceeds important for startups?

Understanding The valuation cap on change-of-ownership proceeds is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 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(7(a) proceeds for a change of ownership are capped at the business valuation amount.)primary · A1 · operating-compliance · rule

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