How do you think about and manage licensing risk in trades acquisitions?

February 19, 2026

by a searcher from Babson College - F.W. Olin Graduate School in Chapel Hill, NC, USA

One of the patterns I keep encountering in trades deals is that a key employee — often the GM or a senior technician — holds the professional license the business operates under. The owner either never held it or let it lapse years ago. The standard advice seems to be: get an employment agreement, add key man insurance, move on. But I'm curious how people who've actually been in these deals think about it in practice. A few questions for the group: 1. How much does this factor into your valuation or deal structure? Does it warrant a price concession, a retention bonus, an equity kicker — or is it just a diligence checkbox? 2. Did your SBA lender have a view on it? Did they condition financing on employment contracts or non-competes for the license holder? 3. Has anyone had this go wrong post-close? What happened? 4. Is there a point where this risk profile makes you walk rather than structure around it? War stories welcome!

Reply by a lender
from Cornell University in Los Angeles, CA, USA

Hi ^redacted‌ - great questions. We broker SBA loans for business acquisitions and see this come up constantly in trades deals. On deal structure: This is more than a diligence checkbox. Lenders treat licensing risk seriously. The most common structure that works is a multi-year employment agreement with the licensed employee, paired with retention bonuses that vest over time. Some lenders will even require the licensed employee be given around 5% equity to ensure they have skin in the game. We've also seen deals where the buyer brings on a partner who holds the license and gives them less than 20% equity so they don't have to personally guarantee the SBA loan. You can also try and find a new employee to hold the license. Much easier conversation than asking a seller to PG. On SBA lender requirements: The most important thing lenders need to know is exactly who will be holding the license at close. Beyond that, most will condition approval on a signed employment agreement and often a non-compete with the license holder. Since the SBA rule changes last year, this has gotten stricter. The seller retaining equity and providing a PG is technically an option, but sellers don't love it because the guarantee is unlimited regardless and can be either 2 years (less than 20% equity) or the entire life of the loan (more than 20% equity) On when to walk: If the licensed person leaves and the business can't legally operate with no realistic backup plan, that's when you pass. We recently closed on a large commercial electrical contractor using the employment agreement and retention bonus structure to get around this exact issue. It works, but the package needs to be strong enough that lenders feel confident the licensed person isn't going anywhere. We have a lot experience financing these types of companies via the SBA. If you ever need help reviewing a deal, I am happy to help. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can email me directly at redacted or schedule a meeting with me: https://cal.com/francodeguzman/30min. Look forward to chatting!

Reply by a searcher
from Wayne State University in Linden, MI 48451, USA

Great question. I am in the funeral/cemetery industry and not only do you need a license personally to do the job, the location itself has to be licensed which requires a licensed manager for each location, as well as a separate license to sell prepaid funerals, etc.. so lots of licensing. In some states you are not allowed to be an officer of the corporation unless you hold a license. This is a double edge sword, it helps provide some barrier to entry, however even that depends on the state you are in, the laws/regulations vary greatly from state to state. Now, are there are ways around it, yes, you can just hire a licensee to act as the manager for a location and to serve as an officer of the corporation, but what happens if they quit since the license for the facility is dependent on them working at that location and they are the only person on the corporate board? I have specialized in the industry for 35 plus years everything from licensed employee, manager, owner, investor, consultant, lender, appraiser, industry business broker, P.E. portfolio manager, back to consulting and now back to being the operating partner of a roll-up as the deal was too good to pass up. I could write a book on the industry, and why someone without a license and who has never done the job day to day will always lose to a guy like me. Not sure if it is this way in every industry that requires a license, but I will bet on the guy with a license and industry experience over someone without every time. So, I would not do a deal that requires a license unless you or a partner hold that license and have actually been successful in the industry.

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