Gifts for down payment

November 19, 2022

by a searcher from Utah State University - Jon M. Huntsman School of Business in South Jordan, UT, USA

I have a very close relationship with some sellers who are willing to gift me the down payment for a 7a loan. Is this something allowed with the SBA? Are there limits on the amount of gift that can be used in a 7a loan?

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Reply by an intermediary
from University of Texas at Austin in Austin, TX, USA

Echo what others have said for SBA - you likely need to have your own "skin" in the game. There are self-canceling installment notes or a forgivable note. Ex. Seller will give you a 5% seller note that must be subordinated, and payments usually can't start for 5 years - and that note can just be forgiven or cancelled. It will not satisfy the requirement of downpayment funds and your own equity in the transaction.

Depending on the relationship with the seller - there are some other vehicles for the sale of a business, that you should discuss with tax and legal advisors. Gift, GRAT/GRUT trust structuring (provides tax benefits for seller, and can be a tool to arrive at a desired bottom line). The annual gift tax exclusion amount is $16,000, and combined with some seller financing, assumption of existing liabilities and traditional financing - you may be able to avoid the SBA.

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

SBA rules (SOPs) change year to year, but almost always if they allow the buyer to use "gifted funds" (not loans of any kind) for the down payment/buyer-cash-equity, those funds must be "seasoned" in the buyer's personal bank account for a mandated period of time (90 days to 6 months, eg you can't receive them the week before closing) and there must be a paper trail of where those funds came from (re they cannot be anonymously gifted). Check with your Preferred SBA Lender for exact up to date details.

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