For SBA lenders
Short answer
The SBA generally prohibits earn-outs from being financed by 7(a) loan proceeds, as the full purchase price must be fixed and determined at closing to avoid speculative elements.
SBA policy requires that the purchase price of an acquired business be clearly defined and fixed at the time of closing. Earn-outs, which involve contingent payments to the seller based on future performance, introduce an element of speculation and create an unfixed purchase price, making them ineligible for SBA financing.
A buyer and seller agree to a purchase price of $1,000,000 plus an earn-out of up to $200,000 over two years based on revenue targets. The $1,000,000 can be financed by an SBA loan, but the earn-out portion cannot be included in the loan amount or guaranteed by the SBA.
Insider move
Lenders must identify and exclude earn-out provisions from the SBA loan amount. They also need to ensure that the earn-out does not create a hidden seller note that circumvents standby requirements or creates undue financial burden on the business.
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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