Does SBA allow distribution of excess cash flow?

intermediary profile

September 12, 2025

by an intermediary from The University of Chicago - Booth School of Business in Chicago, IL, USA

Assume there is cash flow (X) in a year a) after making payments on SBA loan and Seller Note, and b) after distributing cash to cover investor personal tax. Can investors withdraw such excess cash flow (X) as distribution/dividends? Or do they have to use it to prepay debt or keep it on the balance sheet? In most non-SBA commercial loans, lenders restrict distribution of such excess cash flow to owners; it can be used to pre-pay debt or kept on the balance sheet.
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Reply by a lender
from Mississippi State University in Nashville, TN, USA
The loan itself may not have covenants but if you are using investors for down payment funds, the SOP clearly speaks to this. And most credit officers are not going to allow a situation where there is the appearance of investors getting their equity investment paid back. At that point it’s not truly equity in the eyes of sba. Here’s a LinkedIn post I did on this topic: https://www.linkedin.com/posts/matthewsmatt_investor-sba-activity-7369799014030020608-2vIN?utm_medium=ios_app&rcm=ACoAAATlmmkBDjQVyRXFoE08axWhegBdTbBaVgg&utm_source=social_share_send&utm_campaign=copy_link
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Reply by a lender
from University of Iowa in Chicago, IL, USA
We'd be similar to Sean here. Most SBA loans wouldn't have a pre-pay or balance sheet covenant against this, but be sure to ask your lender up front.
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