Seller Notes with SBA Loans

I often get asked about the use of seller notes with SBA loans and there are a few areas of confusion I would like to clarify. First, with the new SBA 7A Rules, only if you are using a seller note as part of your required equity injection is the seller note required to be on standby for the life of the SBA 7A loan. You can get away with as little as 5% down on a business purchase if you have a seller note that is at least 5% of the purchase price and on standby (meaning no required payments) for the life of the SBA 7A loan. However, this does not preclude you from having other sellers notes in the transaction that have more standard repayment terms. Those seller notes can be on standby for a few years, in repayment from day one, have balloon payments in them, have shorter amortizations then the SBA loan, have forgiveness in them, etc. Just so long as the cash flow works to support the senior debt and the seller note(s) as structured, you can have other seller notes on normal terms whether you have a seller standby note for equity or not. We have done deals with as many as three seller notes to meet different concerns of the seller all with different payment terms. Secondly, I often get asked "If a seller note for 20% or more of the purchase price causes the seller to have to guarantee the loan?" The answer is no. Seller notes do not count towards equity and do not require the seller to have to guarantee the loan. Even if the seller agrees to a seller note that is over 20% of the purchase price, that does not require the seller to have to guarantee the loan. The seller only needs to guarantee the loan if the they retain equity in the business, and a seller note is not deemed to be equity. I hope this clarifies some of the confusion out there. If you have additional questions on seller notes, SBA financing, or other commercial financing options for business acquisitions, please do not hesitate to reach out to me at any time here or at redacted