Not sharing consulting agreement with SBA lender

by a searcher from University of South Carolina - Darla Moore School of Business

1 year ago

I brought a deal under LOI and it has somewhat vague wording for the consulting agreement. WE have a separate consulting agreement which I wrote I agree to in an email.  It basically says the seller will stay on for a salary plus commission on all new business he brings in for Year 1.  

The broker is saying that I shouldn't share this wiht the SBA lenders because it will jeopardize the loan being approved.  While in this context it does make sense to keep the Seller on as a Sales Rep for a while, I'm not 100% comfortable with this and don't know if it's a good idea to not disclose this agreement to the bank.  

Does anyone have any thoughts on this?

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8 comments

lender from Eastern Illinois University

I concur with the comments already made. The SBA lender is going to want to understand what the transition looks like. You will need to disclose it. Because it is deemed as a one-time expense, many lenders do not count the seller's short-term payroll against cash flow when underwriting. You have to be careful in how you work bonuses though as it cannot be seen as another payout on the purchase price because the full purchase price needs to be set and handled at closing. But as long as any bonuses are reasonable and easily tracked, it should not be an issue. We have had no issue getting deals done with reasonable seller bonuses. If you have additional questions we are more than happy to help out. You can reach me here or directly at --@----.com

1 year ago | like reply | 0 likes

intermediary from Wake Forest University - Schools of Business

Disclose/talk it over with the lender to get it SBA compliant (i.e., words matter and consultants don't get "salaries", they are###-###-#### Seller will be required to sign a "Certificate of Compliance" stating that Seller will not be a Key Employee (manages day-to-day or has critical influence or substantive control) after closing, but can be a consultant for a period not to exceed 12 months.

1 year ago | like reply | 1 like

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