Partial Buyout + Seller Note on SBA deal
October 19, 2023
by a searcher from University of Pennsylvania - The Wharton School in San Mateo, CA, USA
I have a deal that involves a 99% buyout (for licensing reasons) and a healthy seller note. I'm getting conflicting information on if a partial buyout with a seller note is possible.
Is it possible for a seller to retain any amount of equity and still provide a seller note as part of a SBA deal?
from California State University, Sacramento in Seattle, WA, USA
I did a SF.com post about where Live Oak stands (TODAY) a few weeks ago. I'll summarize here:
The Current SOP as written allows for sellers that own less than 20% post-close and are not considered KEY to not provide a PG. A seller could retain 1%, as an example and have the company use his/her license as an example, and as currently written TODAY, the Seller would not have to PG. Many lenders (but not all) are using today's written SOP to drive their policy as is also the case with Live Oak Bank.
The technical update that lenders have seen BUT THAT HAS NOT BEEN RELEASED is reported to clarify the seller PG such that there will be a 6-month lookback period. If the seller owns more than 20% pre-close within 6 months of the sale, and they have ANY Ownership post close, they will be required to PG. If a seller owns less than 20-% within 6 months of the sale and they own less than 20% post close and are not KEY, they could retain ownership without a PG.
NO ONE HAS ANY IDEA WHEN THE TECHNICAL UPDATE IS GOING TO BE RELEASED.
from The University of Chicago in Chicago, IL, USA
2. ^redacted is piped in with many sources and keeps an eye on the topic as past-chair and active member of IBBA/MAS. His comment is that the update is die###-###-#### and will prohibit seller ownership post-close.
3. Primary reason (to my best knowledge) for SBA to allow retained ownership is for businesses where owner needs a professional license. I hope there is a workable solution to satisfy this need.
4. My math: Assume total equity is 10% of price. 90% is debt + Seller Note. Then,
a) if seller rolls over 5% of price, then seller will own 50% post-close,
b) if seller rolls over 2% of price, then seller will own 20% post-close,
c) if seller rolls over 1% of price, then seller will own 10% post-close,