Seller finance or escrow in SBA funded deals

December 29, 2022

by a searcher in Illinois, USA

I am looking for some stats on how many of SBA funded deals does have seller finance or escrow component in the deal structure ?

Trying to make a case with broker for 10% escrow for 12 months due to customer concentration, key employee retention and some reps and warranties. Broker says the 10% is not common.
I thought seller/;broker would be more receptive to escrow than financing.

Thanks in advance.
Amby

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Hello Amby. I am not aware of any specific data provided by the SBA for transactions with seller notes. However, I can give you data from our own experience. Over the past about 18 months we have done 34 business acquisition deals and seller financing has been involved in 29 of those deals. 80% of those deals were done with SBA financing. The only deals seller financing was not included were a couple where an employee was buying out the owner so they had direct company experience, a couple where the buyers had direct industry experience so the lender was comfortable with that experience, and one where the down payment was significant from the buyer. I hope this informations helps.

Reply by a searcher
from University of Texas at Austin in Dallas, TX, USA

This sounds more like an issue to solve through a forgivable seller note than an escrow. In an escrow you have already put up the money, and will be fighting to have it not be released. In a seller note, you have control of the money which is more advantageous to you if there are issues with the metrics you are tracking.

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