Interested in Transferring Your SBA Loan to Another Person? Here’s What You Need to Know

If you’ve taken out an SBA loan to start or expand your business but now find yourself wanting to sell the business or transfer ownership, you might be wondering: Can you transfer your SBA loan to another person?

The short answer? Not directly. SBA loans are tied to the original borrower and their business, which means transferring them isn’t as simple as handing over the keys. However, there are ways to work around this, such as loan assumption, refinancing, or paying off the loan during a business sale.

In this guide, we’ll break down everything you need to know about transferring an SBA loan, including possible solutions, lender and SBA approval requirements, and tips to navigate the process smoothly.

Can SBA Loans Be Transferred?

SBA loans, such as the SBA 7(a) loan, SBA 504 loan, and SBA Microloan, are structured to support small business owners. The loan terms are based on the borrower’s financials, business history, and personal guarantee. Because of this, the SBA does not allow direct loan transfers from one individual to another.

However, that doesn’t mean you’re out of options. Here are some ways you can effectively transfer an SBA loan under certain conditions.

Options for Transferring an SBA Loan

While SBA loans cannot be transferred outright, there are alternative solutions to help transition the loan to a new owner.

SBA Loan Assumption (With Lender and SBA Approval)

One possible way to transfer your SBA loan is through loan assumption. This process allows a new borrower (the business buyer) to take over the loan under specific conditions. However, the SBA and the lender must approve the transfer, and the new borrower must meet the same qualifications that you did when originally securing the loan.

Requirements for SBA Loan Assumption:

• The lender must agree to the assumption.
• The new borrower must meet SBA eligibility criteria.
• The SBA must approve the assumption.
• The new borrower must provide financial documentation and demonstrate their ability to repay the loan.

Challenges:

• Lenders may be reluctant to approve a loan assumption since they originally underwrote the loan based on your financials.
• The SBA does not commonly approve loan assumptions unless there is a strong case for continuity of the business.

Paying Off the SBA Loan When Selling Your Business

If you’re selling your business, one of the easiest ways to handle an SBA loan is to use the proceeds from the sale to pay off the loan. This allows the new owner to start fresh with their own financing.

How This Works:

• The buyer purchases the business and pays you the agreed-upon amount.
• You use those funds to pay off your outstanding SBA loan.
• The new owner applies for their own financing, if needed.

Pros:

• No need to go through the complicated assumption process.
• Eliminates your debt obligation.

Cons:

• You must sell the business for enough to cover the loan balance.
• If the business isn’t profitable, you may have difficulty finding a buyer who can pay enough.

Refinancing the SBA Loan in the New Owner’s Name

Another option is for the buyer to apply for a new SBA loan and use the proceeds to purchase the business and pay off your existing SBA loan.

Steps to Refinance an SBA Loan for Business Transfer:

1. The buyer applies for their own SBA loan.
2. If approved, they receive funds to purchase the business.
3. The sale proceeds go toward paying off your existing SBA loan.
4. You are released from your loan obligations.

Challenges:

• The buyer must meet SBA loan eligibility.
• SBA loan approval can take time and requires extensive documentation.
• If the business has declining revenues, securing new financing might be difficult.

Selling Ownership but Keeping the SBA Loan (Risky Option)

Some business owners choose to sell their business without paying off their SBA loan, meaning they technically remain the loan holder while the new owner takes over operations.

Why This is Risky:

• You remain personally liable for the loan.
• If the new owner fails to run the business successfully, you’re still responsible for repaying the loan.
• The lender could call the loan due if they discover a change in ownership without proper approval.

This approach is not recommended unless you have a rock-solid agreement and are confident in the new owner’s ability to make payments.

Key Considerations When Transferring an SBA Loan

Regardless of which option you pursue, there are several factors to keep in mind when transferring an SBA loan:

• Lender Approval: Your lender has the final say on whether an assumption or refinancing is possible.
• SBA Guidelines: The SBA has strict rules, and you must follow them carefully to avoid issues.
• Personal Guarantee: Most SBA loans require a personal guarantee, meaning you’re liable even if the business changes hands.
• Creditworthiness of the Buyer: The new owner must have strong financials to qualify for a loan assumption or refinancing.
• Legal Implications: Consult with a business attorney to ensure all paperwork is handled correctly.

How to Smoothly Transfer an SBA Loan

If you are looking to transfer your SBA loan as part of selling your business, here are some tips to make the process smoother:

1. Communicate with Your Lender Early – Your lender will have insights into the best options for your situation.
2. Find a Qualified Buyer – The stronger their financials, the easier it will be to get lender and SBA approval. You can easily list your site on marketplaces like BizBuySell or BusinessesForSale.
3. Gather Documentation – Expect to provide tax returns, financial statements, and a business valuation.
4. Consider a Business Broker – A broker can help facilitate the sale and financing process.
5. Get Legal and Financial Advice – An attorney and accountant can ensure a smooth transaction.

Final Thoughts: Navigating SBA Loan Transfers Successfully

While you cannot directly transfer an SBA loan to another person, there are workarounds that can help facilitate a business transition. Loan assumption, paying off the loan during a business sale, and refinancing are the most viable options, but each comes with its own challenges and requirements.

The key to a successful transfer is working closely with your lender, ensuring the buyer is financially qualified, and understanding your own liability in the process. If you’re considering selling your business and need guidance on handling your SBA loan, consult with financial and legal experts to determine the best path forward.

Are you in the process of selling a business with an SBA loan? Let us know your experiences or questions in the comments below!