SBA Guidelines on Owner Involvement Post-Acquisition

by a searcher from Georgetown University - The McDonough School of Business

3 years ago

I am looking at a transaction that we are considering an SBA loan for financing.  100% of the equity will transfer; however, the owner wants (and we would be interested in if possible), a 3 year transition period.  My understanding is that post-transaction, no owner of the company may remain for longer than 1 year on a 1099 basis.  Any thoughts on ways to accomplish a longer transition on an SBA deal or ways you have dealt with this before?  TIA

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6 comments

intermediary from Indiana University at Bloomington

You can not have a contract for employment or consulting at closing for longer that 12 months. There are no sba police if that person continues working after that, which I have seen many times happen as at an will employee. If they are adding value, then it is in the best interest of the company. The sba is primarily interested in stopping long employment agreements that artificially raises the purchase price and often are ghost employees.
but the old saying in the industry is “you never want to buy a business where the owner doesn’t want to stay 6 months and you never want to buy a business where the owner wants to stay longer than 6 months”. Meaning, transition as quick as you can and run the business.

3 years ago | like reply | 7 likes

investor from University of Virginia

Can anybody that commented above please share ideas publicly for the benefit of all?

3 years ago | like reply | 1 like

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