Can I use a business loan to buy out a business partner?

Yes — partner buyouts are a documented eligible use of SBA 7(a) financing under SBA SOP 50 10, and conventional business acquisition loans are available for the same purpose; the key underwriting factors are the agreed buyout valuation, the resulting DSCR, and whether the departing partner's personal guarantee is released.

SBA 7(a) partner buyout eligibility

The SBA Standard Operating Procedure 50 10 explicitly identifies change of ownership transactions — including partner buyouts — as eligible uses of SBA 7(a) proceeds. For a buyout to qualify, the transaction must result in the buying partner owning 100% (or the agreed majority stake), the purchase price must be supported by a documented valuation, and the departing partner's existing personal guarantee on any current SBA loans must be addressed. SBA lenders will require the exiting partner to be released from the new loan obligation.

Valuation methods lenders accept

Lenders — and SBA lenders specifically — require that the buyout price be supported by a third-party business valuation for transactions above $250,000. Common approaches include: (1) the EBITDA multiple method — typically 2x–5x for small businesses depending on industry; (2) the discounted cash flow (DCF) method for businesses with predictable revenue; and (3) the asset-based method for businesses whose value is primarily in tangible assets. For smaller buyouts below $250,000, a CPA-prepared financial analysis often suffices in place of a full formal appraisal.

Personal guarantee and lien release

If the business currently carries debt — including an existing SBA loan — the departing partner may be a personal guarantor on those obligations. The SBA SOP 50 10 requires that the lender address the existing guaranty structure when a change of ownership occurs. In most cases, refinancing existing debt into the buyout loan handles this cleanly — the new loan pays off the old balance, the old guaranty is extinguished, and only the buying partner signs the new guarantee.

DSCR after the buyout

The critical underwriting question is whether the business — now under single ownership and carrying the buyout loan debt service — will generate sufficient income to service the new loan. Lenders apply the same 1.15x minimum DSCR requirement. If the departing partner was responsible for significant revenue generation, lenders will want to understand how that revenue is retained after the transition.

Partner Buyout Financing — Key Facts

SBA SOP 50 10 identifies change-of-ownership transactions — including partner buyouts — as eligible uses of SBA 7(a) proceeds, provided the transaction is supported by a documented valuation and the new ownership structure meets SBA eligibility requirements. — SBA — Standard Operating Procedure 50 10
SBA 7(a) loans up to $5,000,000 are available for change-of-ownership transactions — the 2024 maximum is $5 million, with SBA guaranteeing up to 85% for loans of $150,000 or less and 75% for loans above $150,000. — SBA — 7(a) Loan Program
The Federal Reserve 2024 SBCS found that business acquisition and change-of-ownership financing were among the uses of credit that had the highest reliance on SBA-guaranteed products — confirming SBA 7(a) as the primary institutional channel for buyout transactions. — Federal Reserve — 2024 Small Business Credit Survey

Key takeaways

Partner buyouts are an explicitly eligible use of SBA 7(a) proceeds under SBA SOP 50 10 — not a workaround or edge case.
A documented business valuation is required for buyouts above $250,000 — EBITDA multiples (2x–5x for most small businesses) are the most common approach.
The departing partner's personal guarantee on existing debt must be addressed — refinancing existing debt into the buyout loan is the cleanest path.
Post-buyout DSCR must remain at or above 1.15x — lenders will scrutinize how the departing partner's revenue contribution is retained.