3 Ways to Roll Equity in an SBA 7A Deal (They told me it couldn't be done)

A few weeks ago I asked the search funder community how to do an equity roll with an SBA 7A. Both the SBA and most lenders said it couldn't be done.

Most I spoke to said the SBA wouldn't do this or, that it was straight up impossible.

I found a few works arounds that I think others should be aware of and validated that they work by talking with other acquisition entrepreneurs who have used them.

Note: Very few lenders are open to these approaches. Thus, do your research and talk with several to find one that will.

For example purposes, let's say you're planning to acquire a $5M EV company. SBA will finance 90%. You'll need 10% ($500k) cash at close, and the seller would like to roll 10% equity at the pre-money valuation of $5M.

Options 1 (Asset Purchase Only): Two Transactions, Single Close: Seller agrees to sell the business for $4M and in a separate transaction, you agree to grant the seller

Option 2:

Option 3 (Stock Sale Only, LLC and C-Corp only, not possible in an S-Corp designation): Ask the seller to create a second class of non-voting shares in the existing company.

Option 4 (Still working to validate - Stock Sale):