Acquisition using SBA 7a Loan while keeping current W-2?

searcher profile

September 12, 2024

by a searcher in Nashville, TN, USA

I am looking to buy a business but would have to remain at my current contracted role for 2-3 months post-acquisition. I am roughly 40 minutes from the business. The current owner wants to close ASAP, but has offered to continue managing to bridge the gap until I can go full-time. Is this something the SBA would allow? Are there lending covenants that dictate full-time operational roles for the buyer upon closing?

I understand that the Seller cannot remain in the business for more than 12 months, and I understand the risks associated with current managements' lack of motivation after a significant liquidity event.
Any recommendations on compensation or deal structure that can be included to keep the seller engaged/motivated?

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commentor profile
Reply by a professional
from The University of Alabama in Birmingham, AL, USA
Yes, this is allowable. Though potentially not advisable and not every lender would want this to happen. If you’re simply trying to work out the rest of a contract, maybe you can just get the loan commitment from the lender, and offer the seller some additional earnest money to keep the deal alive? If you must close before, then you’d want some assurances in place that keep the business operating. And worst case, you ditch the W2 and jump into your business earlier than planned.

Happy to discuss more in depth if you want to shoot an email redacted
commentor profile
Reply by a searcher
from University of North Carolina at Chapel Hill in Raleigh, NC, USA
Hey Shawn - very unlikely the SBA would allow new buyer (you) not present and seller sticking around to run the co after the business has traded hands. If the seller truly likes your offer and thinks you're the right person to take over, what's the harm in waiting 3 months?

In general anytime someone is rushing me, I always pause and try to evaluate what their motives are (typically they aren't great ones). Separately have you explored all options to get out of your current role that is keeping you the extra 2-3 months? Best of luck!
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