SBA Guidelines on Owner Involvement Post-Acquisition

searcher profile

March 05, 2021

by a searcher from Georgetown University - The McDonough School of Business in Houston, TX, USA

I am looking at a transaction that we are considering an SBA loan for financing. 100% of the equity will transfer; however, the owner wants (and we would be interested in if possible), a 3 year transition period. My understanding is that post-transaction, no owner of the company may remain for longer than 1 year on a 1099 basis. Any thoughts on ways to accomplish a longer transition on an SBA deal or ways you have dealt with this before? TIA

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commentor profile
Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA
You can not have a contract for employment or consulting at closing for longer that 12 months. There are no sba police if that person continues working after that, which I have seen many times happen as at an will employee. If they are adding value, then it is in the best interest of the company. The sba is primarily interested in stopping long employment agreements that artificially raises the purchase price and often are ghost employees.
but the old saying in the industry is “you never want to buy a business where the owner doesn’t want to stay 6 months and you never want to buy a business where the owner wants to stay longer than 6 months”. Meaning, transition as quick as you can and run the business.
commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Happy to discuss your potential situation and see if we can find a viable work around. It is hard to be more specific without getting some additional details on how you structured the deal. You can reach me at###-###-#### or via email at redacted if you would like to discuss.
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