The golden ticket to buy a small business has always been a Small Business Administration 7(a) loan. But thanks to a recent and overlooked rule change, it just got even better, giving ambitious entrepreneurs a chance to build a diversified collection of small businesses–their own baby Berkshire Hathaways.

The 7(a) program was established in the same law that created the Small Business Administration (SBA) in 1953. The SBA provides a 75% guarantee on these loans, reducing the risk for lenders and thereby encouraging them to fund small businesses. The money can be used for working capital, equipment, real estate, or even to buy a business.

Business buyers love the SBA 7(a) program not only because it makes more loans available, but also because of its forgiving collateral requirements. Most of the time, a personal guarantee from the buyer is enough. Even better, borrowers often don’t need to put much, if any, money down. Repayment terms can stretch up to 25 years, making it a more affordable option than a standard bank loan that typically maxes out at just 10 years. The program has been a clear success. In fiscal 2024, 70,242 loans were approved, totaling $31.1 billion, with an average loan size of $443,097.

Now, the total volume of loans issued could skyrocket. That’s because in May 2023, the SBA significantly modifed the $5 million cap on total loan guarantees per business owner. Previously, borrowers were limited to $5 million in SBA-backed loans, whether for a single business or spread across multiple ventures. But the agency revamped this “affiliation rule” to allow borrowers to take out up to $5 million per business, as long as each business falls into a different subsector of the North American Industry Classification System (NAICS). With........

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