SBA <> Seller Note

searcher profile

January 26, 2024

by a searcher from University of Pennsylvania - The Wharton School in Tampa, FL, USA

Seller refuses to take a seller note of any kind. Can you still get a SBA loan without a seller note?

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commentor profile
Reply by a lender
from University of Florida in Dallas, TX, USA
Great stuff here. When I do M&A deals where a seller refuses to take a Seller note (typically because the Seller is already in their 80's and doesn't believe they will see the end of the note), a Seller will typically be fine with a haircut on purchase price if it gets the deal done. Sellers are always adding buffer room into their listed sale price.

An additional tool you have is to preorder your 3rd party business valuation. This typically costs $2.5k - $5.0k, and you will be able to use the report for up to 12 months. If the valuation were to state the business is worth $3MM and the Seller won't budge off of $3.5MM, no one can buy the business (via SBA), because a bank cannot lend over the FMV of the business per the SBA. It is a compelling tool to renegotiate the purchase price with a Seller. Please note: this tactic comes with risk, because if the Seller rebuffs you, you are out the cost of the business valuation. If the deal gets done, you can use the cost of the business valuation as part of your injection.
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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I agree with the above. Not required from an SBA perspective, but many lenders prefer to see a seller not so they know the seller still has skin in the game to see you through the transition. We have plenty of lenders that will do the deal without a seller note. However, we would need to be sure the transition risk is not too great.

I always recommend seller notes if possible not for the SBA lender but because if you have any defaults on reps and warranties it gives you an immediate way to claw back on the seller versus suing them in court and chasing them to recapture money you have already paid them and they might have already spent.

Happy to discuss. You can ping me here or directly at redacted Good luck.
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