Contigent Promissory Note

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August 01, 2025

by a searcher from Elon University - Martha and Spencer Love School of Business in Phoenixville, PA 19460, USA

Are there alternatives to earn outs when an sba loan is part of the cap table? Particularly around ebitda in year 1 and 2.
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Reply by a searcher
from Columbia University in Fairfax, VA, USA
^redacted‌ You could use a Forgivable Seller Note structure, even with an SBA loan. The only caveat is that with an SBA 7(a) loan, the metrics for the forgivable portion must be based on the company’s *historical* performance. If it’s tied to future metrics, the SBA considers it an “earnout” which is against their guidelines.
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Reply by a lender
from California State University, Sacramento in Seattle, WA, USA
You might also want to think about using an escrow holdback to help augment the situation you’re trying to mitigate. Also can be tied to historic performance metrics. One year look back. If metrics not met, loan escrow set aside nit released pays the loan down. Escrows can work in concert with forgivable and other seller notes. redacted
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