Breaking Update:
The SBA has just released its long-anticipated technical corrections to its SOP, and search fund lending is on the radar.
Before the hot takes start flying, take a moment to actually read the update… because if your take isn’t “technically”correct, you’ll be spreading inaccurate information.
Here’s what’s important:
The SBA is not banning all search fund deals. In fact, the traditional model where an entrepreneur raises capital from investors to acquire and actively operate a business remains eligible.
The problem arises when that structure is modified in ways that violate SBA requirements.
Two practices are now expressly disallowed:
1: If the entrepreneur lacks actual control of the business, particularly due to a side agreement giving control to a non-guarantor investor, the loan is ineligible.
2: If investors require their capital to be repaid (or receive preferential distributions to recover their investment) before the SBA guaranty is released, that investment is treated as debt, not equity… and that can jeopardize the loan’s eligibility.
The SOP now makes it clear:
If someone who is not personally guaranteeing the loan (typically under 20% ownership) ends up controlling the business through a separate agreement, the deal does not qualify.
Makes sense…
Likewise, any “equity” that walks, talks, and behaves like debt… such as redeemable preferred stock or structured return-of-capital agreements… will be treated as debt for SBA purposes.
This could impact some structures.
That said, this does not mean investors are prohibited from receiving profits. Standard dividends or discretionary profit distributions remain permissible… what matters is the absence of a guaranteed payback.
Most lenders I work with serve “self-funded searchers,” a structure that remains fully viable.
The key is that the searcher must be the guarantor, maintain control, and hold an appropriate ownership percentage.
Bottom line:
Well-structured search fund deals are alive and thriving, but if you’re operating in the gray zone, now is the time to reassess.
Let’s lead with clarity instead of clickbait.
2025 isn’t slowing down…
… and neither are we.