What are Earnout alternatives to comply with SBA loan restrictions?

investor profile

October 14, 2024

by an investor from Cornell University in Cary, NC, USA

As I understand, SBA loans prohibit earn-out arrangements. Just wondering what are other options that can achieve the same goals as earn-out but comply with SBA loan requirements?

Thanks,

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commentor profile
Reply by a lender
from University of Missouri in Denver, CO, USA
Hi, as mentioned above forgivable or conditional seller notes are allowed. A Forgivable or Conditional Seller Notes are now allowed; they are tied to specific conditions such as sales revenue being met in the future. Should the conditions not be met the Note or a portion of it is forgiven or reduced. These are useful when a premium is being paid for a business and the buyer wants to ensure the expected future financial performance happens, or when the value of the business is higher than what the bank can lend on. If you need SBA financing, please reach out here or at redacted
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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
We have quite a bit of experience with this. You can craft seller notes with forgivable features in them where if certain metrics are not hit you do not need to make payments on the seller note. That way the seller note is ultimately tied to revenue, cash flow, etc. Happy to get on a call to discuss these options in more detail. You can reach me here or directly at redacted
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