Cash Distributions to equity owners

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April 26, 2022

by a searcher from Campbell University in Jacksonville, NC, USA

Is it typical for SBA lenders to restrict cash distributions in the form of interest, principle, or other (besides taxes) when the senior loan remains outstanding? In other words, the bank must be fully paid back before anyone receives any excess cashflows? Any insights would be greatly appreciated.

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Reply by a professional
from Dartmouth College in Los Angeles, CA, USA
It may not be an SBA requirement, but lenders often restrict shareholder or member distributions beyond just an ability to make monthly payments under the loan. For larger loans borrowers can often negotiate certain permitted distributions provided they are in compliance with financial ratios and there is some cushion built in.
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Reply by a searcher
from Duke University in Columbus, GA, USA
Hey Jason. My understanding is that as long as you are paying the SBA monthly payments, there are no covenants restricting cash distributions. This would exclude a seller note that was on full standby for the term of the loan. I am sure all the SBA lenders on the site can give a much more meaningful answer though.
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