How Did You Finance a Deal with Seller's Carry?

Financing a deal where the seller wants to retain equity can be challenging when using SBA loans due to their requirement for the seller to sell 100% of their equity. Here are some alternative strategies that others have used to navigate similar situations: Non-SBA Financing Options: Conventional Bank Loans: Some banks may offer conventional financing that doesn't have the same restrictions as SBA loans. You can negotiate terms that allow the seller to retain equity. Private Lenders: Consider working with private lenders or investor groups that are more flexible with deal structures. Seller Financing: Increase the seller-financed portion of the deal to cover more of the purchase price while allowing them to retain equity. Equity Buyout Agreement: Create a formal agreement where the seller’s equity is purchased over time, post-closing. This arrangement can be structured to align with company performance or specific milestones. Holding Company Structure: Establish a holding company that owns the operating company. The seller can retain equity in the holding company, which holds indirect ownership in the business. Ensure this structure is compliant with legal and tax regulations. Convertible Note: Structure the seller’s retained equity as a convertible note. The note can convert into equity at a future date, post-SBA financing compliance period, allowing the seller to benefit from the company's upside. Deferred Equity Grant: Offer a deferred equity grant or options that vest over time, ensuring compliance with SBA requirements at closing while providing future upside to the seller. Mezzanine Financing: Use mezzanine financing as an additional funding layer. This option often allows for more flexible terms, including equity-like participation for the seller. Equity Partners: Bring in an equity partner who can provide the necessary funds and is open to the seller retaining a minority stake. Family Office or Angel Investors: Approach family offices or angel investors who may have fewer restrictions and can structure the deal creatively to accommodate the seller's equity retention. Alternative Loan Programs: Explore other loan programs that do not have the same restrictions as SBA loans, such as local economic development grants or programs. It might be beneficial to consult with a financial advisor or attorney who specializes in mergers and acquisitions to ensure compliance with all regulatory requirements and to explore creative structuring options.

Micah. We’re structuring a clinical research deal where the owner wants royalties. I can share with you once structuring is complete.