What are the rules around a seller staying on in an SBA Deal?

August 21, 2025

by a searcher in United States

What are the rules around a seller staying on. To my understanding, the SBA does not allow the seller to stay on with the business past one year. Are there instances where the seller can consummate a partial sale and stay on in some capacity, or is that out of the question?

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Reply by a lender
from University of Missouri in Denver, CO, USA

Yes agree with ^redacted‌, also note that if keeping 19% or less it is a 2 year PG (no collateral) if over 20% it will need to be full 10 year PG (no collateral)

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

Hallam and Sean are correct. You cannot guarantee any seller more than 12-months of employment as part of the sale if you are doing a full business acquisition. Technically that employment is supposed to be as a 1099 employee as well. However, if the seller retains ownership you can keep them on as an employee for as long as you would like. However, if you do a partial acquisition and have them retain ownership, if they retain 20% or more of the business the seller must sign a personal guarantee for the life of the loan, and if they retain under 20% of the business they must sign a personal guarantee for the full loan amount for two years (if runs off at the end of two years so long as the loan has been current the last 12 months). We are not finding many sellers willing to do the guarantee. Two other things to keep in mind. First, if you do a partial business acquisition, any outside investors that get ownership are required to be co-borrowers on the loan, even if their ownership is under 20%. So that largely eliminates the ability to bring in investors for a partial business acquisition. Secondarily, if you have multiple owners and you are buying out one owner partially or fully and they are getting loan proceeds, but another minority owner is not getting any loan proceeds and will retain their ownership, that other minority owner (so long as they own less than 20%) is not required to guarantee the loan and you can keep them employed indefinitely. I hope this helps. If you have additional questions related to these rules you can reach me here or directly at redacted

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