Scaled Forgivable Seller Note - Sba Compliant

08/08/2019 Redacted Redacted

searcher Harvard University - Harvard Business School

SCALED FORGIVABLE SELLER NOTE - SBA COMPLIANT

Does anyone have an example LOI/IOI or seller note contract with language on a forgivable seller note with the value scaled to a metric? We're looking for something that would be SBA compliant. 

Thanks!

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lender California State University, Sacramento - College of Business Administration - 08/09/2019

Happy to help. Message me at [redacted] and I can share ideas depending on your situation.

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searcher The University of Michigan - Stephen M. Ross School of Business Vanderbilt University - 08/10/2019

Just closed a deal with a structure like this. My experience is that with an SBA loan the note can only be adjusted down and not up. Worked in my favor since I was able to negotiate out of the seller's upside while keeping my downside protection. Happy to discuss more, [redacted]

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searcher Harvard University - Harvard Business School University of Cincinnati - 08/14/2019

While I have not closed anything with specific language, having "negative covenants" or "ratchets" in the Seller Note is supposedly doable according to SBA Lenders. I will reach out.

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lender University of Missouri - Columbia - 08/14/2019

Echoing Kevin's comment; the seller note can be forgiven if a performance metric is not met since it is to the benefit of the business (can't be adjusted up as this would be an earn out). The rub could be the business evaluation though. If you are trying to get the seller into something that has an upside, the business today would need to show an evaluation that supports the full amount, not projected. That can get a little sticky. email me if you have any follow-up questions. Good luck!

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intermediary Wake Forest University - Schools of Business Emory University - Goizueta Business School - 08/14/2019

One other item to work into your language, just so that everyone is on the same page, is that Seller Finance debt forgiveness, when it is a "A qualified purchase price reduction given by the seller of property to the buyer", is not a taxable event: http://www.irs.gov/taxtopics/tc431.html

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