Any suggestions around seller earn back with SBA loan?

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June 25, 2025

by a searcher from Northwestern University - Kellogg School of Management in San Diego, CA, USA

I am working on a deal where seller and I are far apart on the buying price. It is primarily due to our perspective on what the business' potential is over the next few years. My 5-yr CAGR is conservative vs. sellers. To bridge the gap, I am thinking of structuring the deal with some kind of seller earn-back based on performance but where I am running into a wall is this doesnt work with a SBA loan (since earn outs arent allowed on SBA loans as per my understanding). Would appreciate any ideas/ recommendations you might have on the situation. Thank you.
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Reply by a searcher
from University of Virginia in Simi Valley, CA, USA
You should change the narrative - you are buying the past performance.
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from Columbia University in Fairfax, VA, USA
I know it's easier said than done, but the seller needs to understand that your lender will underwrite the deal based on historical tax returns (past performance), and so that's what you have to do as well. A "Forgivable Seller's Note" could be a good solution, but it has to be tied to past performance if you're using SBA financing. If it’s structured around future results, lenders will likely treat it as an earnout (which SBA rules prohibit).
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