SBA 7(a) loan records for fiscal 2018 to 2020, excluding loans that were cancelled or never disbursed and loans whose business age was blank or recorded as Unanswered, show how often loans coded as a change of ownership were charged off within 1,826 days of approval, compared with loans in the age codes this study groups as existing businesses. The clock starts at approval, not at disbursement. Purchase loans were charged off less often overall by loan count. Measured as charged-off amount divided by approved amount, the five-year ratio was 0.93% for change-of-ownership loans and 1.07% for the existing-business group, and no interval for that difference was computed. In a descriptive breakdown of the four industries large enough to compare, the purchase-loan point estimate was lower each time.
This study uses SBA 7(a) loans approved in fiscal 2018 to 2020, excluding loans that were cancelled or never disbursed and loans whose business age was blank or recorded as Unanswered. Selling a company and buying one are decisions most people make rarely. The Small Business Administration’s 7(a) loan records offer one way to see how loans coded as a change of ownership performed in their first five years, next to loans in the age codes this study groups as existing businesses. For change-of-ownership loans, the business-age field identifies the loan as a change of ownership rather than recording the purchased business’s age.
The SBA publishes 7(a) loan-level files that include the business’s age category and whether the loan was later charged off. Starting in fiscal 2018, the records include a “Change of Ownership” category. This study followed 7(a) loans approved in fiscal 2018 through 2020 for five years from their approval date, after excluding loans that were cancelled or never disbursed and loans whose business age was blank or recorded as Unanswered. Loans coded “New, Less than 1 Year old” or “New Business or 2 years or less” (4,886 loans) fall in neither comparison group. After the exclusions, 115,884 loans remain: 14,516 change-of-ownership loans, 74,530 existing-business loans, 21,952 startup loans and those 4,886.
The main comparison
Of 14,516 change-of-ownership loans, 295, or 2.03%, were charged off within five years of approval (95% interval 1.82% to 2.27%). Of 74,530 loans in the age codes this study groups as existing businesses, 2,760, or 3.70%, were charged off in the same window (95% interval 3.57% to 3.84%).
Change-of-ownership loans were lower by 1.67 percentage points (loan-level 95% interval: 1.40 to 1.92 points lower). These are all in-scope loans for those years, not a sample. The intervals describe uncertainty for loans of this kind under a simple binomial model, not sampling error for the listed loans. They are not adjusted for lender clustering, which may make them narrower than a clustered interval would be. This was the single primary comparison, set before the group charge-off rates were calculated. The fiscal 2018 to 2019 sensitivity, the sector breakdown, the dollar comparison, the franchise split, and the loan-size bands were also registered in advance. They are descriptive, not further tests. The existing-business group is defined in Method. It is not an SBA published category, it includes age codes for businesses as young as 2 years, and the age field does not show whether owners were changing.
For context only, 1,030 of 21,952 loans to open a new business, or 4.69%, were charged off within five years. Comparisons between acquisition and startup loans have been published before. The comparison with existing businesses is the focus here.
Four industries, described
Four industry sectors had at least 1,000 loans in both groups. This breakdown is descriptive, not a further test. In each, the change-of-ownership point estimate was lower. The intervals for each group are in the table. Overlap of those intervals is not a test, and no sector difference interval was pre-registered.
Five-year charge-off rate, number of loans and 95% interval (source: SBA 7(a) FOIA files FOIA_7a_FY2010_FY2019_asof_260630.csv and FOIA_7a_FY2020_Present_asof_260630.csv, data as of June 30, 2026, downloaded October 3, 2026):
| Sector (NAICS) | Change of ownership | Existing business |
|---|---|---|
| Retail trade (44-45) | 1.64% of 2,739 (1.23% to 2.19%) | 3.95% of 8,708 (3.56% to 4.38%) |
| Health care and social assistance (62) | 1.21% of 1,238 (0.74% to 1.99%) | 2.25% of 5,601 (1.89% to 2.67%) |
| Accommodation and food services (72) | 2.51% of 2,904 (2.00% to 3.15%) | 3.28% of 7,416 (2.90% to 3.71%) |
| Other services, except public administration (81) | 2.18% of 1,696 (1.59% to 2.99%) | 3.43% of 6,100 (3.00% to 3.91%) |
Dollars, loan size, and franchises
SBA’s data dictionary defines the approved amount (GrossApproval) as “Total loan amount” and the charged-off amount (GrossChargeOffAmount) as “Total loan balance charged off (includes guaranteed and non-guaranteed portion of loan)”. Measured as charged-off amount within five years divided by approved amount, the ratio was 0.93% for change-of-ownership loans (bootstrap 95% interval 0.76% to 1.12%) and 1.07% for existing-business loans (0.98% to 1.16%). The approved amount is not the amount disbursed or outstanding, so this ratio is not a loss rate on money actually advanced. This comparison is descriptive. No interval for the difference between the two ratios was registered or computed, so it does not show whether the ratios differ.
In descriptive breakdowns among change-of-ownership loans, five-year charge-off rates by approved loan size were 2.66% for loans under $150,000 (1,878 loans), 3.10% for $150,000 to under $500,000 (5,031), 1.43% for $500,000 to under $1 million (3,071), and 0.99% for $1 million or more (4,536). Change-of-ownership loans with a franchise code had a rate of 1.88% (3,089 loans) and those without one had 2.07% (11,427). This split is descriptive, and no interval for the difference was computed. Loan-size bands differ in industry and lender mix. Differences by loan size reflect both. Nothing here isolates an effect of loan size. Franchise status comes from the SBA franchise code field, which can be incomplete. The registered band labels (under $150,000, $150,000 to $500,000, $500,000 to $1 million, and over $1 million) were ambiguous at the exact dollar boundaries. The analysis code, written before any rate was computed, used half-open bands: under $150,000, $150,000 to under $500,000, $500,000 to under $1 million, and $1 million or more. A dated protocol amendment, made after the results were seen, recorded that clarification. The bands and the calculation did not change.
Limits that matter
A charge-off is a loan outcome, not a business failure. Loans charged off more than five years after approval are not counted, so these are not lifetime loss rates. The clock starts at approval, not at disbursement. The exploratory box below checks whether that matters. Payment relief under Section 1112 of the CARES Act covered many SBA loans in 2020, including loans approved in fiscal 2018 and 2019 that were then in repayment, so no cohort here is free of that relief. A sensitivity check on fiscal 2018 and 2019 loans only was registered in advance. It is reported because it was registered. It is not a remedy for that relief. Excluding fiscal 2020, the rates were 2.20% for change-of-ownership loans (211 of 9,572) and 4.25% for existing-business loans (2,327 of 54,779), the same direction. Loans from those two fiscal years could still have received Section 1112 payments while in repayment.
Free 20-Minute Operations Review
Dealing with a specific operational bottleneck? Kamyar Shah works with founders and CEOs to identify the root cause and build a fix.
Business age was blank or recorded as Unanswered for 20,446 approvals, so those loans could not be assigned to either comparison group. If those loans differ in charge-off outcomes, excluding them could affect the reported gap. The exploratory box below describes a selection-risk check for them. These are SBA-guaranteed loans only, not all business purchases. Change-of-ownership loans finance a purchase, while existing-business loans finance other uses such as working capital or equipment, and the two can carry different SBA underwriting requirements. They may also differ in loan size, industry, and lender. The rates here are not adjusted for any of that. This study does not compare loan-size mix, or charge-off rates by size, between change-of-ownership loans and the existing-business group. It cannot say whether size mix accounts for any of the gap. The gap describes how these loans performed. It is not proof that buying a business is safer.
Exploratory, not pre-registered. Reason included: outside reviewers asked whether change-of-ownership loans take longer to disburse, which would give them less time at risk under an approval-based clock. SBA’s
FirstDisbursementDatefield is filled for 14,511 of 14,516 change-of-ownership loans and 74,520 of 74,530 existing-business loans. The median time from approval to first disbursement was 31 days in both groups. The mean was 42.6 days for change-of-ownership loans and 50.0 days for the existing-business group. Counting five years from first disbursement, for loans first disbursed by June 30, 2021 (14,500 and 74,463 loans), the charge-off rates were 2.11% (95% interval 1.89% to 2.36%) and 3.83% (3.69% to 3.97%). The gap remained in the same direction when the five-year clock started at first disbursement. That does not rule out every timing difference.The same box also covers the 20,446 loans excluded because business age was blank or recorded as Unanswered. Their five-year charge-off rate, counted from approval, was 4.85% (991 of 20,446 loans, 95% interval 4.56% to 5.15%), higher than either comparison group, and their median approved amount was $50,000. Which group these loans belong to is unknown. As a simple reassignment scenario, if every one of them had been a change-of-ownership loan, that group’s rate would have been 3.68%, about the same as the existing-business group’s 3.70%. This is not a worst case, because group membership among these loans could be related to their outcomes. This box is descriptive.
What the numbers mean for buyers and sellers
This section and everything after it, up to Method, are interpretation and guidance from operating practice. They are not findings of this study.
Among disbursed 7(a) loans with a usable business-age code, change-of-ownership loans were charged off less often within five years than loans in the existing-business group, 2.03% against 3.70%. Measured by dollars, the two ratios were much closer, 0.93% against 1.07%. The figures describe loans, not businesses, and they cannot show that buying a business is safer than running one. The 20,446 loans without a usable age code are a reminder that the answer depends on which records are counted, as the exploratory box above shows.
For a buyer, the honest reading is narrow. Among loans with a usable age code, purchases financed through the 7(a) program did not show a higher five-year charge-off rate in these years than the existing-business group. That is useful context. It is not a reason to relax diligence, because a loan that is repaid can still sit on a business that disappoints its new owner.
For a seller, the figures say something indirect. Buyers can finance purchases through this program, which widens the pool of buyers who can pay a fair price. A business is easier to finance when its earnings and operations can be verified by someone who has never worked in it.
How to handle it: make the business easy to finance and easy to hand over
The steps below are an operating recommendation. This study did not test them, and SBA does not endorse them. Lending terms, eligibility, and tax treatment change, so each step should be confirmed with a lender, an accountant, and transaction counsel.
For sellers, two to three years before a sale:
- Separate the owner’s role from the business. Write down what the owner does each week and move as much of it as possible into documented procedures and named roles. A business that depends on one person’s memory is harder to value and harder to finance.
- Clean the financial record. Consistent monthly closes, reconciled accounts, and a clear line between personal and business spending make earnings verifiable. Lenders and buyers discount what they cannot verify.
- Plan the handover. Decide in advance how long the seller will stay involved after closing and which relationships, with customers, suppliers, and staff, need a personal introduction.
For buyers, before and after closing:
- Test the earnings, not the story. Ask for the monthly financials, the tax returns, and the customer concentration, and reconcile them to each other. A quality-of-earnings review by an outside accountant is worth its cost on a financed purchase.
- Map the operation before day one. Identify the routines that keep the business running and who performs them. Anything that lives only in the seller’s head is a transition risk to cover in the purchase agreement and the handover plan.
- Hold working capital in reserve. A transition usually costs more and takes longer than planned. A buyer who borrows to the limit leaves no room for the first quarter that goes differently than expected.
What this data does not tell you
- It does not show that buying a business is safer than starting or running one, or that any practice reduces charge-off risk.
- It covers SBA-guaranteed 7(a) loans approved in fiscal 2018 to 2020 only, not all business purchases.
- A charge-off is a loan outcome, not a business failure, and loans charged off after five years are not counted.
- Loans without a usable business-age code are excluded, so the comparison depends on which records are counted.
A business sale is an operating event as much as a financial one. About 98 in 100 change-of-ownership loans in this data were not charged off within five years. Building a business that can keep running after its owner changes is the part both sides control.
Method
Already published by the agency: the SBA publishes the loan-level files but no table for this comparison. Private analysts have published acquisition-versus-startup default comparisons. New here: a fixed five-year charge-off window for fiscal 2018 to 2020 loans, comparing change-of-ownership loans with existing-business loans, overall and by sector.
Source. U.S. Small Business Administration, 7(a) FOIA loan-level files for fiscal 2010 to 2019 and fiscal 2020 to present, data as of June 30, 2026, downloaded October 3, 2026. The files are public records. In SBA’s data dictionary, each record is a 7(a) or 504 loan (the Program field is an “Indicator of whether loan was approved under SBA’s 7(a) or 504 loan program”), and BusinessAge is a “Categorical description of the age of the business”. No borrower, lender, or franchise brand is named here.
Population. All 7(a) loans approved in fiscal 2018 through 2020. Loans cancelled or never disbursed (18,229) were excluded. Loans whose business age was blank or recorded as “Unanswered” (20,446) were also excluded. By fiscal year, they were 8,355 loans (13.8% of fiscal 2018 approvals), 8,536 (16.4% of fiscal 2019), and 3,555 (8.4% of fiscal 2020). “Existing business” combines the SBA age codes “Existing or more than 2 years old”, “Existing, 5 or more years”, “Less than 5 years old but at least 4”, “Less than 4 years old but at least 3” and “Less than 3 years old but at least 2”. Startup loans are those coded “Startup, Loan Funds will Open Business”. Other new-business codes are in neither group.
Measure. A loan counts as charged off if its charge-off date falls within 1,826 days of its approval date, which this article calls five years. For loans approved from March 1, 2019 through February 28, 2020, the window crosses two leap days and ends one day before the fifth anniversary of approval. In those records, two existing-business charge-offs fell on that anniversary day and are not counted, which does not change any rate shown at the precision reported. Every loan in the window has at least five years of follow-up as of June 30, 2026, so open and paid loans count as not charged off rather than being dropped. Count rates use Wilson 95% intervals, the difference uses the Newcombe method, and the dollar ratios use a bootstrap with 2,000 draws. Sectors use the first two digits of the NAICS code, combined as NAICS defines them. No multiplicity adjustment was made. Rates are not adjusted for lender clustering.
Protocol. The analysis plan, including the single primary comparison, was fixed in a dated protocol before any group charge-off rate was computed. Later amendments are listed in it: https://kamyarshah.com/public-data-protocol/
The agencies did not review or endorse this analysis. Kamyar Shah sells fractional COO and CMO services.
Questions about this analysis can be sent through https://kamyarshah.com/contact/.
