Any Way of Structuring SBA Funded Deals with Contingency Payments?

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May 08, 2022

by a searcher in San Francisco, CA, USA

I understand that SBA does not use earnout as part of a deal structure and usually only allow seller notes. Are there any creative ways of building performance based contingency payments into an SBA deal structure such that they do not violate SBA's requirements?

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Reply by a searcher
from University of Pennsylvania in Atlanta, GA, USA
I agree with Matthew. Although the SBA doesn't allow earn-outs or allow the seller to be in a key role after 12 months, they appear to love seller notes as a means to lay off risks for the buyer. I've been working with Live Oak, an preferred SBA lender. Here's a useful link (6 Biz Acq tips): https://www.liveoakbank.com/sponsor-finance-resources/6-acquisition-tips-sba-loan-experts/ .

If you must use an SBA loan for whatever reason, as with any loan or deal structuring, be creative and focus on the issue you want to resolve and that will help you seek out successful solutions.
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Reply by a searcher
from Georgetown University in Raleigh-Durham, Durham, North Carolina, USA
You could use a forgivable seller note based on certain criteria (ie-if revenue drops below X, the remainder of the loan is forgiven). In this model, you could actually take out multiple seller notes with different contingencies for forgiveness.

Please keep in mind that I am not a SBA expert. Steve Mariani with easySBA is who I’ve worked with before – he is very knowledgeable of SBA lending and how to get creative when structuring a deal. Good luck!
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