SBA seller note standby

April 05, 2022

by a searcher from Providence College in Providence, RI, USA

Is it acceptable for a buyer to negotiate two different seller notes? for example:

first seller note is 50% of Buyer’s 10% down payment for SBA loan (5% note) and the second Seller note is the traditional seller carry/ financing.

Which note will SBA put on standby, after the 10 year term; the 5% note or the traditional seller carry?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I agree with Colin. We recently closed a deal with three seller notes. In that case one was the 5% on full standby for 10 years for part of the down payment, a second note was for 10% and had payments being made over 10 years with a ballon at year 5, and the third was another standby note to cover a shortfall in the business valuation. On the seller notes in repayment some lenders will allow balloons while others will not. Most want the amortization to match the SBA loan term, but some will allow for an accelerated amortization in certain circumstances. Some require no payments for the first year or two. It can also depend on each transaction what the lenders will allow. The more flexibility you have with the seller the better. I would say most lenders like to see at least 5 to 10% in a seller note on all business acquisitions to ensure the seller is incentivized to be sure the business transitions successfully. If I can ever provide any additional assistance as we place deals through over 50 SBA lenders, please let me know. I can be reached at redacted

Reply by a lender
from University of Missouri in St. Louis, MO, USA

Joseph, yes you can do two (or more) seller notes. The 5% note has to has to be fully deferred for the life of the SBA loan. the other loan is discretionary. Since you achieved 10% equity (assuming I understand correctly you have 5% cash/5% fully deferred seller note) you can do whatever you, the seller and the bank want on the other seller note.

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