SBA AND DISTRIBUTIONS - A DIFFERENT PERSPECTIVE

I would like to share some thoughts on the recent post suggesting that SBA has changed a rule recently regarding distributions. There are many gray areas within the SBA programs where there is not clear SBA / SOP guidance. For these gray area subjects, borrowers will find a wide variety of interpretation from lender to lender. Each bank will be left to determine whether allowing something, or requiring something is defensible with the SBA during an audit, or in the event of a loan default where the lender is asking SBA to honor the guaranty. The topic of distributions, preferred equity and board governance are among these gray area topics. My advice is to speak with more than one lender to learn where your lender stands.

Investment in small business by search fund investors is a very good thing for the entire SMB eco system, in my humble opinion. It increases access to capital, grows jobs, and increases liquidity for exiting sellers. Governance of these small businesses by investors via a Board of Directors reduces risk, and is also a very good thing. CEO's often make better decisions when they have engaged and experienced directors providing oversight. Unfortunately, there is a fear among some in the SBA programs that investors in small businesses are a source of risk (perhaps they will cause I default by distributing so much that they effectively bankrupt the company they invested in? I find this extremely unlikely. While there is always a potential for bad actors, I believe the fear comes from a lack of familiarity.



https://www.searchfunder.com/post/sba-no-longer-allowing-distributions-to-investors-while-loan-outstanding





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