SBA & Forgivable Debt - How To?

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February 25, 2025

by a searcher from University of Washington - Michael G. Foster School of Business in Portland, OR, USA

Hello, we are looking to utilize the SBA for an acquisition and are looking for folks who have completed, or have knowledge on how to structure a forgivable note to meet SBA guidelines. If you have the answer we would love to connect, so please send a note!

Thank you!

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Reply by a searcher
from University of Southern California in Portland, OR, USA
I have a forgivable seller's note in addition to my SBA loan. From my recollection, there were no SBA guidelines to follow to allow for it to be forgivable. There was some customer concentration in my deal so the forgivable note was a way to mitigate that risk. I highly recommend working with Matthias Smith redacted He knows the rules and process as well as the lender. It was very helpful to have him on my team.

There are guidelines if you want to count the note towards your equity injection requirements. I structured it with a 10 year term with the first 2 years fully deferred (i.e. no payments or interest accrual). This structure allowed me to count the 10% seller note toward the bank's buyer equity requirements. This left around 8% needed in cash. A friend wanted to invest so I only ended up putting down around 3%. I've set aside the funds I was planning to use for the equity injection in an index fund in case I need it for growth or to cover a negative turn in cash flow.
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Reply by a searcher
from University of Washington in Seattle, WA, USA
Hey Christopher,

While I have not executed this, it is my understanding that this is standard practice. It is the same as writing up a typical seller note but adding provisions for different hurdles. I believe the SBA looks at these as a total note and does not consider your performance hurdles. I could definitely be wrong there though. This would be an interesting question to ask at Live Oak Banks office hours. ^redacted‌ can share details on that.

Hope you figure it out!
Bryan Hanson
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