{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-is-the-rule-for-an-earn-out-provision-in-a-business-acquisition-structured-with-an-sb","api_url":"https://dealroom.so/api/public/questions/what-is-the-rule-for-an-earn-out-provision-in-a-business-acquisition-structured-with-an-sb","question":"What is the rule for an earn-out provision in a business acquisition structured with an SBA 7(a) loan?","topic":"Seller notes & acquisition structure","audience":"borrower","bot_mode":"buyer","short_answer":"Earn-out provisions are generally permissible in SBA 7(a) acquisitions, but any earn-out payments made to the seller must be entirely subordinate to the SBA loan, similar to a full standby seller note.","rule":"The SBA requires that any contingent payments to the seller (like an earn-out) cannot be made if the business is unable to meet its obligations, including the SBA loan payments. Therefore, earn-out payments are treated as distributions that must be subordinate to the SBA loan.","example":"A business is acquired for $1,000,000 plus an earn-out of up to $200,000 over two years based on performance. The $200,000 earn-out payments can only be made if the business is current on its SBA loan and meets specific financial performance thresholds, acting effectively on full standby.","what_lenders_check":"Lenders will require a clear subordination agreement for the earn-out, ensuring that no payments are made to the seller that could jeopardize the business's ability to repay the SBA loan. They will carefully review the terms of the earn-out.","required_facts":["Earn-out provision","Business acquisition","Subordinate payments","Seller payment","Loan priority","Contingent payments"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans","Standard 7(a) Authorization File Library"],"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"},{"title":"Standard 7(a) Authorization File Library","url":"https://www.sba.gov/document/support-standard-7a-authorization-file-library"}],"related_questions":[],"related_terms":[{"term":"Lease with an option to purchase","url":"https://dealroom.so/glossary/lease-with-an-option-to-purchase"},{"term":"Business acquisition","url":"https://dealroom.so/glossary/business-acquisition"},{"term":"Default Provision","url":"https://dealroom.so/glossary/default-provision"},{"term":"Not engaged in lending rule","url":"https://dealroom.so/glossary/not-engaged-in-lending-rule"},{"term":"For-profit business","url":"https://dealroom.so/glossary/for-profit-business"},{"term":"Business acquisition loan","url":"https://dealroom.so/glossary/business-acquisition-loan"}],"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/what-is-the-rule-for-an-earn-out-provision-in-a-business-acquisition-structured-with-an-sb","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."]}