Rev Share and SBA

searcher profile

June 08, 2023

by a searcher from Harvard University - Harvard Business School in Williston Park, NY, USA

Hi Folks, has anyone structured a deal where they would purchase the business via an SBA but then have a rev share where seller will get paid a fee (not a seller note) for any revenue that continues to be brought in by existing customers above a certain amount (would obviously be capped)? This would not be an earn out by any means, just a means to ensure a retention of existing customer spend.

Trying to understand if this would work with an SBA loan since it is not a seller note but rather a rev share fee arrangement.

Reason this is being proposed by the seller is a) bc it is industry practice and b) it allows me to deduct it from the P&L (lower taxes) vs paying it out of post tax cash flow (which is what happens with a seller note).

All thoughts welcome.

Thanks!

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
It may be possible depending on the lender. But in general any sort of future compensation beyond a normal salary is not accepted under SBA financing as it is viewed as a future payout and specifically earn-outs are not allowed, and this appears (I understand you do not intend it to be) to be an earn-out. I have seen some lenders allow a bonus structure based on performance. But if it is positioned as earnings on a growth in revenues, my guess is most lenders will say it is not allowed. Happy to discuss in more detail and potential options at redacted
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Reply by a lender
from Bloomsburg University of Pennsylvania in Ambler, PA 19002, USA
My experience is extremely unlikely that this would be a viable stucture for most/all SBA lenders (based on closeness to earnout language and a alteration to the purchase price post close). What you could do (albeit benefit goes entirely to buyer) is structure some seller note that is forgiven if certain milestones/metrics are not hit. Seller in full buyout scenario cannot have any involvement in the company past the first year of transitionary support. Happy to chat at any time about creativity with this redacted
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