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SBA 504 Q&A: Divesting in EPC but Remaining in OC
Q: In a Small Business Administration (SBA) 504 loan project where there are different owners for the Eligible Passive Concern (EPC) and the Operating Company (OC), can one of the owners in the EPC sell their ownership share of the real estate to the other owner(s) in the EPC while retaining ownership in the OC?
A: If the selling partner remains as an owner and/or is involved with the OC, the loan request would not be eligible for financing as the SBA prohibits proceeds of a loan going to an associate of the business.
For this type of request to be eligible, the selling owner would have to completely divest their ownership in the OC.
Per the SOP, complete divestiture includes divestiture of all ownership interest and severance of any relationship with the applicant (and any associated EPC) in any capacity, including being an employee (paid, unpaid or contracted).
If you have a question you’d like our SBA 504 loan experts to answer, email us at info@FloridaFirst.com or call 850.681.3601 or toll-free at 800.504.LOAN.