Seeking SBA lender for deal with contingent seller note

searcher profile

November 24, 2021

by a searcher from University of Manchester in Seattle, WA, USA

Dear all,

My partner and I are looking to acquire a company where the deal structure consists of 50% on day 1 and 50% deferred. The deferred element is a contingent seller note that it is released subject to revenue targets being met. I'd be grateful if anyone can recommend an SBA lender willing to finance this kind of deal.


Many thanks,

Andrew

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commentor profile
Reply by a searcher
from University of Pennsylvania in New York, NY, USA
SBA will allow these kinds of contingent loan structures only if the contingency is based on historical performance targets (not growth targets). Further, the deal has to underwrite assuming the seller note is paid out.

Basically earnouts are not allowed, so the deal has to work assuming the loan is there and they contingency can’t be based on growth (like an earnout).

Given that, most big SBA lenders will be okay with it (Live Oak, First Bank of the Lake, etc).
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Reply by a searcher
from Wabash College in Indianapolis, IN, USA
Plenty of banks will go for contingent pay-outs, but the advance they'll make is much lower on a conventional note than using SBA financing. The SBA guarantees a majority of the 7a loan, so the banks are able to get more aggressive if the deal fits the program
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