Lender Insights on Creative Structuring for SDE/Revenue Volatility

March 06, 2025

by a searcher from Wayne State University in Detroit Metropolitan Area, MI, USA

Hi All,

looking for Lender insights and willingness to creatively finance businesses that have variable SDE/Revenue over the past few years (assuming most other deal terms being standard).

I’ve gotten several deals under LOI only for the most recent year’s SDE/revenue to be lower (around 10-30%) with the years prior showing steady signs of growth. The Sellers understandably are not enthused about lowering the price/changing the terms considerably but I need to hedge my risk.

Lenders: How can I structure these types of deals to be compliant with the SBA that will allow the potential to pay the Seller the full purchase price should the past year be truly a “one off” year?

Are there ways to structure seller notes, consulting agreements, etc. to function as an earn out without it being considered an earn out? Forgivable seller notes have been considered but my understanding is that the entirety of the note has to be factored into DSCR.

Reply by a lender
from University of Southern California in Los Angeles, CA, USA

Hi - The way to structure this is a forgivable seller note. If the business does not hit a certain revenue amount in the next year then that seller note is forgiven. The way you can structure is to have a 1 year performance / tracking period and then a longer amortization period. You can still make it a forgivable seller note with a 2 year partial standby so you can use the the seller note as a way to reduce your equity investment in the deal. I’d love to help you find the right SBA lender for this deal. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can reach me here or directly at redacted You can also click here to schedule a meeting with me: https://cal.com/ishan-jetley-3d73m8/30min. Look forward to chatting!

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I would be happy to jump on a call and discuss options for working around this. I do think the best option is usually seller notes with forgiveness, but there are some things you need to keep in mind when structuring them to be sure they remain SBA compliant. We have been involved in structuring some complex notes that have been directly approved by the SBA if you need assistance. You can reach me here or directly at redacted if you would like to discuss further.

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