Change of Ownership

Two entirely different things go by this name, and both matter to the same reader.

As a financing

Buying a business, or buying out a partner, is underwritten on the target's historical cash flow adjusted for what will actually change after closing, plus the buyer's ability to run it. The lender wants: three years of tax returns and interims for the target, the purchase agreement, an add-back schedule with support, the buyer's personal financial statement and resume, a working capital plan for the transition, and a valuation.

SBA 7(a) is the common vehicle for main-street transactions because the guarantee lets a lender advance against goodwill it could never take as collateral. Program rules set a minimum equity injection, define what counts toward it, require an independent business valuation above a stated transaction size, and govern seller notes counted toward equity, which generally must be on full standby. The percentages and thresholds have moved across SOP revisions — read the current SOP, not a broker's summary or an older article.

As an event of default

Nearly every loan, lease, factoring agreement and receivable-purchase agreement contains a clause making a change of control without prior written consent an event of default. Definitions vary and are often broad: a transfer of a stated percentage of equity, a change in the managing member, the departure of a key person, even a change in the entity's state of organisation.