Not sharing consulting agreement with SBA lender

August 26, 2023

by a searcher from University of South Carolina - Darla Moore School of Business in Charleston, SC, USA

I brought a deal under LOI and it has somewhat vague wording for the consulting agreement. WE have a separate consulting agreement which I wrote I agree to in an email. It basically says the seller will stay on for a salary plus commission on all new business he brings in for Year 1.

The broker is saying that I shouldn't share this wiht the SBA lenders because it will jeopardize the loan being approved. While in this context it does make sense to keep the Seller on as a Sales Rep for a while, I'm not 100% comfortable with this and don't know if it's a good idea to not disclose this agreement to the bank.

Does anyone have any thoughts on this?

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Reply by a searcher
in New York, NY, USA

You will be asked about the seller's involvement post-close, and probably even asked in your first conversation with a lender. You must be honest and truthful in disclosing to them what your plans are. You will be required to attest to the accuracy and completeness of your statements in the application and underwriting. Submitting false information or withholding material information from the bank is not a good idea, not just because it is fraud but also because it would jeopardize your ability to ever pursue a transaction again. This request from the broker would also cause me to question whether THEY are withholding material facts from YOU. Everything they say and have said would be immediately suspect in my mind. Pay close attentions during QofE and get good Reps and Warranties if you plan to close.

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

I concur with the comments already made. The SBA lender is going to want to understand what the transition looks like. You will need to disclose it. Because it is deemed as a one-time expense, many lenders do not count the seller's short-term payroll against cash flow when underwriting. You have to be careful in how you work bonuses though as it cannot be seen as another payout on the purchase price because the full purchase price needs to be set and handled at closing. But as long as any bonuses are reasonable and easily tracked, it should not be an issue. We have had no issue getting deals done with reasonable seller bonuses. If you have additional questions we are more than happy to help out. You can reach me here or directly at redacted

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