Article by: Brian Hunter Hardman, CM&AP
Capital is the lifeblood of any business acquisition. For years, entrepreneurs have relied on Small Business Administration (SBA) loans combined with seller notes to fund small business acquisitions. However, recent changes to the SBA's Standard Operating Procedures (SOP), taking effect in 2025, are dramatically shifting how acquisitions can be structured.
What are the 2025 SBA changes?
The new SBA SOP changes make traditional funding options more restrictive. Here are the highlights and why they matter to you:
- Buyers Must Bring a Minimum of 5% of Their Own Funds
The SBA requires a 10% equity injection. As of 2025, at least 5% must come from the buyer’s personal, unborrowed funds, making it harder to structure acquisitions with outside money creatively.
2. 10-Year Standby for Seller Notes Required to Meet 10% Equity Injection
Previously, sellers could help buyers meet the SBA’s 10% equity injection requirement with a seller note on a two-year standby. Now, if the buyer’s down payment is less than 10%, only 5% equity injection can come from a seller note, and it must be on a 10-year standby. That means no payments to the seller of principal or interest for ten years, a condition some sellers may not accept.
3. Increased Personal Guarantees
If the seller retains as little as 1% equity in the business, they must personally guarantee the SBA loan for two years. This may be a dealbreaker for some sellers and limit partial buyouts.
An IRS-approved program lets you use your retirement funds as a down payment for a business. This is made possible through a little-known but powerful program called Rollovers for Business Start-ups (ROBS). This strategy allows you to tap into your 401(k) or other qualified retirement plan to fund your entrepreneurial goals, without upsetting your tax accountant.
What is ROBS?
ROBS usually allows you to roll funds from a qualified retirement account, like a 401(k), IRA, or TSP, into your new business acquisition without taxes, penalties, or debt. NOTE: Roth IRAs are ineligible.
This is done by forming a C-Corporation that sets up its own 401(k) plan. You then roll your existing retirement savings into that plan, which uses the funds to purchase the assets or stock of your new business acquisition.
This method allows you to:
- Acquire a business without borrowing.
- Access capital quickly.
- Avoid monthly loan payments.
- Still contribute to your retirement through the new 401(k).
Why is ROBS a strategic solution in this new landscape?
With SBA tightening its grip on funding, ROBS offers a flexible and powerful workaround that:
- Meets SBA Equity Injection Requirements
ROBS funding counts as legitimate buyer equity, eliminating the need for seller notes or buyers' liquid savings.
According to a recent report, approximately 45% of buyers who use ROBS pair it with SBA loans, using their retirement funds to satisfy the equity injection requirement cleanly and compliantly.
- Avoids Seller Pushback
Sellers are not required to finance the acquisition, making negotiations cleaner and faster. There is no need to tie up sellers with personal guarantees if the business acquisition is funded by sellers retaining equity without an SBA loan.
What are some additional benefits of ROBS?
Beyond SBA compatibility, ROBS gives you the ability to:
- Minimize taxes and penalties on early retirement withdrawals.
- Launch a new business acquisition debt-free, improving your business cash flow and profit potential.
- Maintain full control of your retirement investment, rather than relying on market-driven portfolios.
All of this is 100% legal and compliant under the Employee Retirement Income Security Act (ERISA) guidelines, as long as the structure is properly executed and maintained.
What are ROBS requirements?
ROBS comes with requirements and ongoing duties:
- Eligible Retirement Funds
You must have a minimum of $50,000 in eligible retirement funds. - C-Corporation Structure
Only C-Corporations can issue the stock required for ROBS. - Bona Fide Employment
You must work at least 500-1000 hours per year in the business. - Fair Market Valuation
If using ROBS to acquire an existing business, an independent certified business appraisal may be necessary. - Inclusive 401(k) Plan
All eligible employees must be invited to participate in the plan. - Fiduciary Standards
As the plan administrator, you must act in the best interests of all participants, including yourself.
This might sound like a lot, but experienced ROBS providers can help manage compliance, reporting, and legal oversight.
Who should consider ROBS?
ROBS is a great fit for those who are:
- Seeking SBA funding with flexible equity.
- Wanting to avoid monthly loan payments.
- Looking for speed and control in the acquisition process.
- Struggling to close acquisitions under the new SBA SOP rules.
What are the costs for ROBS?
ROBS is not free money. When evaluating a ROBS structure, it is essential to consider both initial setup and ongoing administrative fees to determine if the amount you roll over justifies the cost. For example, Guidant Financial, a prominent ROBS provider, requires a one-time setup fee of approximately $4,995. Their ongoing monthly administration fees begin at $139.
Additionally, it is important to note that most providers offer different levels of customer care and support, so reviewing the fine print and understanding the specifics of each service is recommended.
Final thoughts: Your retirement can be your launchpad
With the SBA tightening its rules and sellers reluctant to accept seller notes on a 10-year standby and personally guarantee buyers' loans even if the seller retains only 1% equity, traditional deal-making has become more difficult. ROBS offers a fresh, IRS-compliant solution that allows you to take charge of your future without taking on risky debt or draining your post-tax savings account.
When combined with an SBA loan, a ROBS structure does not just help you meet the equity injection requirement — it simplifies acquisition structure, accelerates the closing process, and strengthens your business’s financial position from day one.
Trusted providers, like Guidant Financial, specialize in helping entrepreneurs set up compliant ROBS structures tailored for small businesses. They provide your maximum funding amount along with a personalized list of pre-approved options. Learn more at https://www.gfprequal.com/eba
Contact an Edison Business Advisors team member today to help you get started on your new business acquisition.
Brian Hunter-Hardman, CMAP
Certified Merger & Acquisition Professional
Contact: [email protected]
Direct: (239) 710-3545
