SBA lender asking for subordination agreement from investors

investor profile

July 29, 2022

by an investor from University of California, Berkeley - Haas School of Business in San Francisco Bay Area, CA, USA

I invested in a self-funded search deal a couple of years ago. In connection with a loan increase and modification, the lender is now asking all investors to sign a subordination agreement that includes language saying that no preferred dividends can be paid and no capital can be returned to investors until the SBA loan is fully repaid.

Does anyone know if there are SBA SOPs requiring this, or is the lender simply trying to re-negotiate the deal to lower their own risk?

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commentor profile
Reply by a lender
from University of Missouri in St. Louis, MO, USA
A couple of years ago the SBA put out some directives on investors/equity being paid. The theory being that investor funds that have a defined payment would be considered debt v. equity. Typical of the program they put out wording that wasn't very clearly defined nd was left open to interpretation (similar to investors previous SBA exposure counting against a new borrower's $5M cap). The bank might be cleaning this up now.
commentor profile
Reply by a searcher
from Harvard University in Boston, MA, USA
This seems off, I asked about it on twitter because I'm also curious, looks like it's just lender specific: https://twitter.com/njstager/status/1553019161877553152
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