Scaled Forgivable Seller Note - SBA Compliant

investor profile

August 08, 2019

by an investor from Harvard University - Harvard Business School in Houston Heights, Houston, TX 77008, USA

Does anyone have an example LOI/IOI or seller note contract with language on a forgivable seller note with the value scaled to a metric? We're looking for something that would be SBA compliant.

Thanks!

12
15
765
Replies
15
commentor profile
Reply by a searcher
in Chicago, IL, USA
SBA compliant I found is sometimes in the eye of the beholder of the SBA lender. Some say anything that changes the purchase price (note notional value) is not permitted even if it is to the benefit of the business. One way to get around it is to use "negative covenants". If certain targets are not met such as revenue growth or ebitda margin then the interest goes to 0% or negative. Maybe the Term changes from 7 years to 50 years. Then time value of money kicks in. A dollar paid back 50 years from now is not worth much....
commentor profile
Reply by a lender
from University of Missouri in St. Louis, MO, USA
Echoing Kevin's comment; the seller note can be forgiven if a performance metric is not met since it is to the benefit of the business (can't be adjusted up as this would be an earn out). The rub could be the business evaluation though. If you are trying to get the seller into something that has an upside, the business today would need to show an evaluation that supports the full amount, not projected. That can get a little sticky. email me if you have any follow-up questions. Good luck!
commentor profile
+13 more replies.
Join the discussion