Demystify SBA policy about earn-outs?

by a professional from University of Southern California - Marshall School of Business

1 year ago

Does anybody know/want to speculate on why the SBA won’t guarantee business acquisition financing if an earn-out is part of the transaction?
Possibilities: (?)
Something must be wrong with the business for the owner/seller to accept conditional payments?
The business is overvalued, but the buyer wants to control the company and is conditionally willing to pay more to get it?

1 like
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10 comments

investor from Duke University

I thought the owner couldn't roll equity in a deal backed by an SBA loan. Is that not correct?

1 year ago | like reply | 0 likes

searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School

Contingency payment is fine though, just cannot have “upside” participation. This would be remedied by them rolling a small portion of equity (could even put into a new class with terms you want to look like an “earn out” by a different name).

1 year ago | like reply | 1 like

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