Eligible passive company (EPC)

Definition

A holding entity the SBA lets own property the operating business uses.

Why It Matters

The SBA does not lend to businesses that merely hold assets, so buying the building along with the company needs a structure the program recognizes: one entity operates and one holds the real estate, leasing it across at a rent the lender will accept. It matters to a buyer for two reasons that arrive at different times. It is what makes a real-estate-inclusive purchase financeable at all, and the lease between the two entities becomes a document the lender underwrites, so the rent cannot be set to whatever suits the tax return.

In numbers: An EPC borrowing $900,000 at $6,400 a month may charge the operating company that payment plus its real holding costs, so $1,100 of taxes, insurance and upkeep supports rent of $7,500. A lease carrying the seller's old $9,500 market rent sits $2,000 above what 13 CFR 120.111(a)(3) allows, and gets rewritten before closing rather than after.