SBA Loans and Earnouts

by an investor from University of California, Berkeley - Haas School of Business

4 years ago

Does anyone know if SBA loans can support an earnout?

We are looking to buy a $1.5M EBITDA business for $6M. The business is experiencing some weakness due to COVID and we have agreed on an earnout structure to de-risk the deal. We would pay 60% upfront and the remaining 40%  when the business returns to pre-COVID gross margins on an LTM basis. We are trying to understand if this structure can work with an SBA loan. For example, could 40% of the loan be drawn at a later time (but approved now) or could 40% of the loan proceeds be deposited in an escrow account until it is paid? 

Appreciate any insights from the SBA experts on this forum.

3 likes
422 views
11 comments

lender from University of Utah

It needs to be a seller note. Happy to discuss. --@----.com or###-###-####

1 month ago | like reply | 0 likes

searcher from American University - Kogod School of Business

I would have a very clear clawback clauses to protect the acquisition if it turns out that the seller misrepresented the business's financials or prospects. The biggest complexity is the seller’s ability to influence the outcome if they are not involved in the business post-sale.

5 months ago | like reply | 0 likes

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.