EARN-OUT WORKAROUNDS? (FORGIVABLE NOTE, SIDE LETTER, EROSION CLAUSE, ETC.?)
I'm looking at a deal with significant volatility in[redacted]2x previous years), and unsurprisingly the owner claims the change the structural and wants to be paid for it. I'm looking for a way to de-risk the deal based on an "earn-out" while using an SBA loan.
The easy answer here is that earn-outs are explicitly prohibited, but I keep hearing about potential work arounds where you can get the same function without it being considered as an earn-out by the lender.
Thanks in advance for the help.
tagging a few lenders who can either answer your question directly or introduce you to someone who can. To my commenters, thank you in advance for making Searchfunder a helpful community. ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted]
To my commenters, thank you in advance for making Searchfunder a helpful community. ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted]^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted], ^[redacted]
On you point about additional feeds for the seller, how material of an increase are we talking? Should the additional expenses be baked into the price? Or is your point to just highlight the cost so there are no last minute surprises?
Once you know what your limitations are from the lender, I'd search out some high-level ideas (like what Patrick and Colin suggested, for example) and discuss this with Seller (if you are even remotely skeptical about Seller's broker/IB, if there is one, keep the broker out of this discussion because of the potential conflict of interest - make sure Seller knows you want to keep the broker out to potentially save SELLER money). If you and Seller can arrive at a plan that works between you (and the bank is good with it), you can each take that plan to your respective legal counsel and have them document it properly (and, as Patrick noted, make sure at some point you are clear with the broker on the issue of commissions based on the structure you have selected). If you get legal involved too early without a clear plan, having attorneys involved in the back-and-forth can get expensive quickly.