Deal structure for investor when using an SBA loan

investor profile

April 02, 2023

by an investor from New York University in St. Louis Metropolitan Area, USA

If an SBA loan is being used to acquire a business, can an investor who is not providing a personal guarantee contribute, say, 90% of the cash injection but keep only 20% of the equity and still get distributions of more than 20% of the net cash flow after debt service?
If not, what’s the best way to structure this deal, given that the investor does not wish to provide a PG.

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Yes, the amount of equity coming from an investor versus the owner does not have to match the percentage ownership. The SBA identifies the risk of the personal guarantee and responsibility of managing the business for the primary owner. I am happy to talk more details at any time at redacted
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Reply by a professional
from Villanova University in West Chester, PA, USA
A profit sharing or phantom equity structure may be a solution if they comply with the nuances of the SBA requirements. We’ve used that structure for a number of clients. I’d be happy to discuss this further.
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