For SBA lenders
Short answer
An earn-out provision in a business acquisition cannot be financed by the 7(a) loan and is typically treated as a contingent liability that must be subordinated to the SBA loan.
SBA 7(a) loan proceeds cannot be used to fund an earn-out. An earn-out, being a future payment contingent on the business's performance, is generally considered a seller's equity and must be fully subordinated to the SBA loan. The earn-out amount is not included in the calculation of the required buyer equity injection.
A business is acquired for $1,000,000, with an additional $200,000 earn-out payable over two years if specific revenue targets are met. The 7(a) loan is for the $1,000,000 purchase price. The $200,000 earn-out cannot be financed by the SBA loan and must be fully subordinated to the SBA loan and not paid until the SBA loan is satisfied.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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