Resources
Educational
Deal structure
Price the closing with buyer cash, a seller note, a contingent earnout, an equity roll, and the SBA loan that fills the rest. The earnout stays out of the loan. Equity injection rules live in the current SOP 50 10, which this page does not apply.
Uses and coverage
- SBA loan
- $650,000
- Sources sum
- $1,000,000
- Cash to seller at close
- $750,000
- Year-1 debt service
- $114,249
- Year-1 DSCR
- 2.10
- Fully loaded DSCR
- 1.82
Sources equal the price. The earnout is not inside the loan.
- Sources are buyer cash, the seller note, the contingent earnout, the equity roll, and the SBA loan. They are built to add up to the price. A negative SBA loan means those other pieces already exceed the price.
- The earnout is contingent. It is left out of the loan and out of debt service. A 2023 SBA procedural notice for SOP 50 10 7.1 said seller earnouts were prohibited on 7(a) change-of-ownership loans. The current SOP 50 10 is what a lender applies. This model does not assume an earnout can be financed.
- Cash to the seller at close is the price minus the equity roll, the earnout, and the seller note. Those three pieces are not cash at closing.
- Standby changes only the first-year seller-note payment: interest only, or no payment. After standby, the model uses a fully amortizing payment on the original note amount. A real note's amortization after standby is whatever the note says.
- Equity injection, standby that counts toward injection, guarantee fees, and collateral are in the current SBA SOP 50 10. This model does not apply that SOP.
- A debt-service coverage ratio under 1.25 is flagged because many lenders use a screen in that neighborhood. It is not an SBA rule and not a credit decision.