By Michael Jamison, CPA, CGMA
For years, I have had the same frustrating conversation with successful business owners.
They spent decades building a company. They created jobs. They developed leaders. They built a culture that mattered. When the time came to think about succession, their first choice was often clear: sell the business to the key employees who helped build it.
Unfortunately, the financing didn’t work.
A company worth $2 million or $3 million could often be transferred to management through an SBA-financed buyout. But once valuations climbed past $5 million, the options became much more limited. Owners frequently faced a difficult choice: accept significant seller-financing risk, pursue a complicated multi-year transition, or sell to a private equity group or strategic buyer with deeper pockets.
That dynamic may be changing in a meaningful way.
The SBA recently implemented a policy allowing eligible borrowers to combine SBA 7(a) and 504 financing for up to $10 million in SBA-backed funding, effectively doubling the prior cumulative limit of $5 million.
While the headlines have focused primarily on growth capital and expansion financing, I believe one of the most significant long-term impacts will be on succession planning for larger small businesses.
The Employee Buyout Gap Has Been Real
Many business owners do not want to sell to the highest bidder.
They want to preserve the culture they created. They want employees to continue having career opportunities. They want customers to experience continuity. They want the business to remain locally owned.
The problem has been that key employees rarely have millions of dollars available for a down payment.
Historically, when a business valuation exceeded the practical SBA financing threshold, the seller often had to carry a large portion of the purchase price. In some cases, that meant the owner’s retirement security remained tied to the future performance of a business they no longer controlled.
That creates significant risk.
The seller assumes the risk that future management executes successfully. They assume economic risk. They assume industry risk. And they often remain financially dependent on a note that may stretch for years.
Many owners rightfully viewed that as an unacceptable concentration of risk.
Why the New $10 Million Limit Matters
The increase in available SBA-backed financing creates a larger pathway for management buyouts and internal succession plans.
A business owner with a company valued at $6 million, $7 million, $8 million, or even higher may now have a more realistic opportunity to structure a transaction where a much larger portion of the purchase price is funded through institutional lending rather than seller financing.
That changes the conversation dramatically.
Instead of asking, “Can my employees afford to buy the business?” the discussion increasingly becomes, “Can we structure a transaction that a lender will support?”
Those are very different questions.
Good businesses with stable cash flow, experienced management teams, diversified customer bases, and strong financial reporting become much more financeable when larger amounts of SBA-backed capital are available.
For owners who have spent years developing their leadership team, that is an enormous opportunity.
A Potential Counterweight to Private Equity
Private equity has played an increasingly significant role in acquiring successful small businesses.
To be clear, private equity is not inherently bad. Many firms provide strategic resources, operational expertise, and growth capital that help businesses scale.
However, many business owners are not seeking private equity because it is their preferred option. They pursue private equity because internal succession alternatives are not financially viable.
When financing options are limited, the private equity buyer often becomes the default buyer.
The new SBA financing structure has the potential to introduce more competition into that equation.
Business owners who would have previously been forced to consider an outside sale may now have a more realistic path to transition ownership internally.
That matters.
It keeps more decision-making local.
It preserves more founder-built cultures.
It creates wealth-building opportunities for the next generation of leaders.
And it allows employees who helped create enterprise value to participate in ownership rather than simply working for a new ownership group.
What This Means for Business Owners Today
If you own a business with a valuation above $5 million and have historically assumed that an employee buyout was unrealistic, now is the time to revisit that assumption.
The businesses most likely to benefit are those that have:
– Strong and consistent cash flow
– A capable second-tier leadership team
– Reliable financial reporting
– Diversified revenue sources
– Established management processes
– Key employees who are committed to long-term ownership
In many cases, the biggest obstacle to succession planning has not been the lack of interested buyers. It has been the lack of financing.
This policy change helps address that problem.
The Bigger Picture
America’s small businesses were largely built by entrepreneurs who invested years—often decades—into creating something valuable. Many of those owners would prefer to see their life’s work continue under the leadership of the people who helped build it.
Until now, financing limitations have often made that difficult once business valuations exceeded approximately $5 million.
By expanding access to SBA-backed financing up to $10 million, policymakers may have unintentionally delivered one of the most meaningful succession-planning tools Main Street has seen in years.
The result could be more employee-owned businesses, more successful internal transitions, and fewer founders feeling forced to choose between taking excessive seller-financing risk or selling to outside investors.
That’s good for business owners.
It’s good for employees.
And in many communities across America, it may help keep some of the best locally owned businesses exactly where they belong—locally owned.
Call to Action
Many owners spend decades building a valuable company but surprisingly little time exploring their exit options.
If your business has crossed the $5 million valuation threshold, don’t assume a sale to private equity is your only path. The recent SBA changes may allow you to transfer ownership to the people who helped build the business while reducing the amount of seller financing and personal risk historically required.
The best succession plans are built years before they’re needed. Whether you’re considering a transition in three years or fifteen years, now is the time to begin evaluating your options, identifying future leaders, and assessing whether an internal sale could be viable.
The rules have changed. The financing landscape has changed. And for many successful business owners, the range of available exit strategies may have expanded significantly.
Your future buyers may already be working for you today.
— Michael Jamison, CPA, CGMA
President, OnTarget CPA
