For SBA lenders
Short answer
Lenders must treat earn-outs as a contingent liability, exclude them from the purchase price for equity injection calculation, and ensure they don't jeopardize the borrower's ability to repay the SBA loan.
Earn-out provisions in acquisition loans represent a contingent payment to the seller based on future performance. The SBA requires that such payments not be included in the total project cost for purposes of calculating the required equity injection. Lenders must analyze the borrower's projected cash flow to ensure the business can comfortably service both the SBA loan and any potential earn-out payments without undue financial strain.
A $1,500,000 business acquisition includes a $200,000 earn-out payable over two years if specific revenue targets are met. The lender would calculate the equity injection based on the $1,300,000 base purchase price. The lender's cash flow analysis must then demonstrate the business can service the SBA debt, plus the potential $100,000 annual earn-out payments.
Insider move
Lenders must clearly separate the earn-out from the core acquisition cost for equity calculation. A key concern is ensuring the earn-out structure does not create an unmanageable debt burden or de facto partial standby debt that is paid prematurely, potentially jeopardizing the SBA loan's performance.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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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