SBA 7(a) Q&A
Short answer
An earn-out component of the purchase price typically does not count towards the buyer's required equity injection; it is usually treated as additional contingent seller financing.
Earn-outs are generally considered future contingent payments to the seller based on the business's performance post-acquisition. For SBA purposes, these are not treated as equity injection at closing because they are not a firm, irrevocable cash contribution by the buyer. If the earn-out is payable from the business's cash flow, it must be on full standby to the SBA loan.
A business is purchased for $1,000,000 plus a $200,000 earn-out payable over two years if specific revenue targets are met. The $1,000,000 portion requires a $100,000 equity injection. The $200,000 earn-out will not count towards that $100,000 and would need a standby agreement if paid from business cash flow.
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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