{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-account-for-an-earn-out-provision-in-a-business-acquisition-for-7-a-loan-","api_url":"https://dealroom.so/api/public/questions/how-does-the-sba-account-for-an-earn-out-provision-in-a-business-acquisition-for-7-a-loan-","question":"How does the SBA account for an earn-out provision in a business acquisition for 7(a) loan purposes?","topic":"Change-of-ownership","audience":"lender","bot_mode":"lender","short_answer":"Earn-out provisions are generally not considered part of the initial purchase price for 7(a) loan sizing but can be factored into cash flow projections if structured as a deferred, contingent seller payment.","rule":"SOP 50 10 specifies that the purchase price financed by a 7(a) loan must be for a definite, ascertainable amount at closing. Earn-outs, being contingent and future payments, typically cannot be financed by the SBA loan. However, the potential future earn-out payments should be considered in the business's projected cash flow for debt service coverage analysis.","example":"A $1,000,000 business acquisition includes a $100,000 earn-out payable over two years based on future revenue. The 7(a) loan finances the $1,000,000 base purchase price, and the earn-out is treated as a future contingent liability in the cash flow projections.","what_lenders_check":"Lenders must ensure that earn-outs are clearly structured as contingent payments, not financed by the SBA loan, and do not impair the business's ability to service the SBA debt. Mischaracterizing an earn-out can lead to a guaranty denial.","required_facts":["Contingent payment","Deferred seller payment","Cash flow projections","Debt service coverage","Not financed by SBA","Purchase price sizing"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"What specific considerations apply to valuing goodwill and intangible assets in a 7(a) change-of-ownership transaction?","url":"https://dealroom.so/for-lenders/questions/what-specific-considerations-apply-to-valuing-goodwill-and-intangible-assets-in-a-7-a-chan"},{"question":"When is a business valuation report required for a 7(a) change of ownership transaction, and who must perform it?","url":"https://dealroom.so/for-lenders/questions/when-is-a-business-valuation-report-required-for-a-7-a-change-of-ownership-transaction-and"},{"question":"What is the maximum loan term allowed for a 7(a) loan used solely for working capital or equipment, without real estate?","url":"https://dealroom.so/for-lenders/questions/what-is-the-maximum-loan-term-allowed-for-a-7-a-loan-used-solely-for-working-capital-or-eq"}],"related_terms":[{"term":"SBA 7(a) program","url":"https://dealroom.so/glossary/sba-7-a-program"},{"term":"SBA 7(a) loan","url":"https://dealroom.so/glossary/sba-7-a-loan"},{"term":"SBA 7(a) Loan Program","url":"https://dealroom.so/glossary/sba-7-a-loan-program"},{"term":"SBA 7(a) loan guaranty","url":"https://dealroom.so/glossary/sba-7-a-loan-guaranty"},{"term":"7(a) loan","url":"https://dealroom.so/glossary/7a-loan"},{"term":"Business acquisition","url":"https://dealroom.so/glossary/business-acquisition"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-account-for-an-earn-out-provision-in-a-business-acquisition-for-7-a-loan-","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}