Definitive SBA Guidelines on Use of Seller Notes in 2024

searcher profile

July 09, 2024

by a searcher from University of California, Santa Cruz in Austin, TX, USA

Hi Everyone,

As per my title. I'm in-process negotiating a couple SBA acquisition deals and have found it extremely difficult to find definitive, clear, guidance on what structure/composition of seller notes is permitted by SBA loans.

As a means of countering spiky revenues and/or high interest rates I am leveraging seller notes and (ideally) leveraging target-based (ex top-line revenue) seller notes to manage risk for all parties.

Everyone agrees "earn-outs" will be rejected by SBA, but that is about where continuity ends. Talk to three different lenders and get three different answers. Looking for clarity on what constitutes an "earn-out" and what SBA will allow in terms of targets based seller notes.

I would like to avoid going through due diligence only to have the deal fall apart because it will not be accepted by SBA guidelines.

Have y'all encountered this as well?

Thank you!
Dan

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Great question. Unfortunately some of the information out there is misleading and it is partially due to the fact that different lenders interpret the rules differently or have their own internal guidelines that might be more restrictive then what the SBA will allow. We have lending partners that have been pretty aggressive in what they will offer and we have had quite a bit of success getting done some pretty complex seller note structures with forgiveness built in. I would be happy to have a conversation and go over options available, You can reach me here or directly at redacted
commentor profile
Reply by a lender
from University of Missouri in Denver, CO, USA
I have had success in getting forgivable seller notes done. I believe the key is basing it off historical measures per the SOP so revenue targets, etc. not "targets" moving forward. I saved a post from Search Funder that is in a word document form that I would be happy to send you that is pretty through. Please also reach out if you need SBA financing here or at redacted
commentor profile
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