QSBS Meaning: Everything You Need to Know

In this article we’ll discuss what are QSBS meaning. QSBS stands for qualified small business specialist and refers to a designation that the United States Small Business Administration (SBA) offers to small business lenders. The purpose of the designation is to encourage lenders to make more loans available to small businesses.  To be eligible for the designation, lenders must meet certain criteria, including having a portfolio of small business loans that is greater than or equal to $1 million.

What is QSBS meaning?

Qualified Small Business Seller, or QSBS, is a designation from the IRS that allows small businesses to sell their stock to investors without paying taxes on the gains. A qualified small business corporation (QSBC) is a corporation that meets the following requirements:

1. The corporation is a domestic C corporation.
2. The aggregate gross assets of the corporation (including the gross assets of any predecessor) at all times since December 8, 1980, did not exceed $50 million.
3. As of the date of issuance, more than 50% in value of the corporation’s outstanding stock is owned by not more than 500 natural persons.
4. The corporation is engaged in a qualified active trade or business.

There are several other requirements, but if a business meets all the criteria, it can enjoy tax-free gains on the sale of stock. This makes QSBS a very attractive option for small businesses looking to raise capital. If a corporation meets the above requirements, then 100% of the gains from the sale of its stock are excluded from taxation. This is a huge benefit for small businesses looking to raise capital. 

What are some benefits of being a QSBS?

There are a few key benefits of being a QSBS:

1. Access to capital: One of the main benefits of being a QSB stock is that it gives small businesses access to capital. This is because lenders are more likely to make loans available to small businesses that have the QSBS designation.
2. Tax benefits: Another benefit of being a QSBS is that it allows small businesses to sell their stock without paying taxes on the gains. This is a huge benefit for businesses that are looking to raise capital.
3. Increased lending: The QSBS designation also allows for increased lending to small businesses. This is because lenders are more likely to make loans available to businesses that have the QSBS designation.
4. More attractive to investors: Being a QSBS also makes small businesses more attractive to investors. This is because investors are more likely to invest in businesses that have the QSBS designation.
5. Better terms on loans: Finally, small businesses that have the QSBS designation can often get better terms on their loans. This is because lenders are more willing to work with businesses that have the QSBS designation.

What businesses are ineligible for QSBS status?

Small business owners should be aware that not all businesses are eligible for QSBS status. The most common reason a business is ineligible is because it is engaged in a passive business, such as real estate investing. While there are other requirements, if a business meets all the criteria, it can enjoy tax-free gains on the sale of stock. This makes QSBS a very attractive option for small businesses looking to raise capital.

Overall, the QSBS designation is a huge benefit for small businesses. It gives them access to capital, tax benefits, increased lending, and more attractive terms on their loans. If you are a small business owner, then you should definitely consider getting the QSBS designation.