SBA financing with Seller Note

searcher profile

April 28, 2021

by a searcher from The University of Chicago - Booth School of Business in Carmel, IN, USA

Hi all,

My understanding is that SBA terms don't allow for an earn out, but there are other creative ways to tie future performance to the acquisition. If I put all of the 'earn out' (which is relatively small in this case) as seller financing is this still possible with SBA?

Thanks

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commentor profile
Reply by a lender
in Yorba Linda, CA, USA
Yes, a forgivable seller note is acceptable with an SBA loan, but only if it is tied to historic performance metrics, not future growth. And as ^redacted‌ states above, the total purchase price (which includes the forgivable seller note) is supported by the Business Valuation. We talk about this and other nuances for self-funded searchers live every Wednesday at 11 am EST. If you'd like to register, please send me an e-mail: redacted
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Reply by a professional
from Bishop's University in Moncton, NB, Canada
If you want an earnout, all you do is make a seller note contingent on certain performance targets. The SBA just wants a fixed number for the total purchase at the time of sale. If part of the seller note doesn't get paid because a target wasn't met, that's usually ok.
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