Full standby forgivable seller note on an SBA deal

December 08, 2022

by a searcher in Dallas, TX, USA

Is anyone able to provide an LOI template that includes language for a seller note that is on full standby to the repayment of the SBA loan and forgivable if certain revenue hurdles aren't met in the following year post close?

Also any additional information on negotiating or using these in SBA deals would be very helpful!

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Reply by a searcher
from Bowling Green State University in San Antonio, TX, USA

You practically wrote it in your first paragraph. For better or worse they need to be really short and to the point. I would also add *subordinate to the SBA and any WC lender.* Might be redundant but nothing worse than a seller finding out in the 11th hour of the deal that you can choose not to even make the very first payment and it's going to take him over 10 years to legally press you to pay him. The WC portion clause ensures that that lender also stays ahead of the Seller; WC won't lend if not, and getting another subordination letter executed by seller after the sale is unlikely.

Reply by a searcher
from Southern Methodist University in Dallas, TX, USA

If the note is full standby for the SBA loan term you may be able to structure an earn out on anything remaining. A full standby note is considered equity to the SBA.

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