{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/if-an-exiting-partner-demands-an-earn-out-as-part-of-a-buyout-how-does-the-sba-7-a-loan-tr","api_url":"https://dealroom.so/api/public/questions/if-an-exiting-partner-demands-an-earn-out-as-part-of-a-buyout-how-does-the-sba-7-a-loan-tr","question":"If an exiting partner demands an earn-out as part of a buyout, how does the SBA 7(a) loan treat this?","topic":"Partner buyouts","audience":"borrower","bot_mode":"buyer","short_answer":"An earn-out as part of a partner buyout can be included in an SBA 7(a) acquisition, but the earn-out portion cannot be financed by the SBA loan.","rule":"Earn-outs, which are contingent payments based on future business performance, are not eligible for SBA financing. The SBA loan will only cover the fixed portion of the purchase price. The earn-out must be clearly structured as a separate agreement between the buyer and seller, paid from future cash flow, and fully subordinated to the SBA loan.","example":"A partner buyout is structured with a $500,000 fixed price and a $50,000 earn-out based on next year's revenue. The SBA 7(a) loan can finance the $500,000 fixed portion (subject to equity injection). The $50,000 earn-out cannot be part of the SBA loan and must be paid separately by the buyer, with its payment terms subordinated.","what_lenders_check":"Lenders ensure that the earn-out component is explicitly excluded from the SBA loan amount. They also require documentation confirming the earn-out is subordinated to the SBA loan, meaning no payments can be made on the earn-out if it jeopardizes the SBA loan repayment.","required_facts":["Earn-out payments","Partner buyout","SBA loan ineligibility","Subordination","Fixed purchase price"],"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":"If I'm buying out a partner, does the remaining partner also need to personally guarantee the SBA loan for $500,000?","url":"https://dealroom.so/sba-7a/questions/if-i-m-buying-out-a-partner-does-the-remaining-partner-also-need-to-personally-guarantee-t"},{"question":"If I am buying out a partner, does the SBA require the business to pass a cash flow test post-acquisition?","url":"https://dealroom.so/sba-7a/questions/if-i-am-buying-out-a-partner-does-the-sba-require-the-business-to-pass-a-cash-flow-test-po"},{"question":"If I am buying out a partner, how does the SBA ensure the purchase price is fair and justifiable?","url":"https://dealroom.so/sba-7a/questions/if-i-am-buying-out-a-partner-how-does-the-sba-ensure-the-purchase-price-is-fair-and-justif"},{"question":"Can an SBA 7(a) loan be used to purchase a business if the seller will retain a minority ownership stake?","url":"https://dealroom.so/sba-7a/questions/can-an-sba-7-a-loan-be-used-to-purchase-a-business-if-the-seller-will-retain-a-minority-ow"},{"question":"What are the requirements for the seller in an SBA 7(a) business acquisition loan?","url":"https://dealroom.so/sba-7a/questions/what-are-the-requirements-for-the-seller-in-an-sba-7-a-business-acquisition-loan"},{"question":"Can an SBA 7(a) loan be used to fund a partner buyout with an earn-out provision?","url":"https://dealroom.so/sba-7a/questions/can-an-sba-7-a-loan-be-used-to-fund-a-partner-buyout-with-an-earn-out-provision"}],"related_terms":[{"term":"Buyout of a Partner","url":"https://dealroom.so/glossary/buyout-of-a-partner"},{"term":"Partner buyout","url":"https://dealroom.so/glossary/partner-buyout"},{"term":"Out of pocket","url":"https://dealroom.so/glossary/out-of-pocket"},{"term":"Buyout","url":"https://dealroom.so/glossary/buyout"},{"term":"Partner","url":"https://dealroom.so/glossary/partner"},{"term":"Cash-out","url":"https://dealroom.so/glossary/cash-out"}],"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/sba-7a/questions/if-an-exiting-partner-demands-an-earn-out-as-part-of-a-buyout-how-does-the-sba-7-a-loan-tr","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."]}