SBA Loans & Hold Backs

searcher profile

December 03, 2021

by a searcher from Cornell University in Sunnyvale, CA, USA

Has anyone successfully structured an SBA deal that held back payment through escrow until certain revenue targets were hit? I’m attempting to receive the full loan amount from SBA but disburse portions of it only after certain revenue thresholds have been met, and want to find a precedent that I can copy or learn from.

PS — I’ve already heard plenty of times that this isn’t possible, but I don’t buy that. Rather than commenting “it’s not possible,” I’d like to hear about creative examples where it’s been done.

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commentor profile
Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA
Lisa is correct as I helped a client last year do exactly that with Live Oak. Other banks may not (usually) understand the rules. If the escrow is not paid to seller, then the amount goes back to the bank, you don't get to keep it. We have used erosion clauses on most deals due to Covid, either bumps or dips. You can also use Seller Notes for the same purpose, allows for a longer lookback, but usually they have a shorter amort so possibly more cash out of pocket annually after the first year (but usually the first year is when you need more cash, so a seller note is better). Seller gets is all in 12 months with an escrow, might be able to do it longer with the bank vs. getting it over time with a Seller Note.
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Reply by a searcher
in San Diego, CA, USA
I was on a call with Live Oak Bank yesterday and I believe they mentioned it is possible to have a holdback in an SBA loan: you may want to connect with ^redacted‌ or ^redacted‌. I'd appreciate if you could let me know what you find out.

Just in case holdback is not allowed, bear in mind that you could make the seller to agree to a forgivable note. That would provide you with some financial protection after close. I have negotiated forgivable notes in the past: if interested in discussing more about those feel free to DM me.
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