SBA 7(a) Q&A
Short answer
An earn-out must be structured as a future payment from the business's cash flow, completely separate from the SBA loan proceeds, and fully subordinated to the SBA debt, not impacting the business's ability to repay the loan.
The SBA prohibits direct financing of earn-outs. Instead, these contingent payments to the seller must be funded by the business's post-acquisition profits, demonstrating that the business can service both its primary debt and the earn-out without jeopardizing the SBA loan.
A $1.5 million acquisition includes a $150,000 earn-out over three years based on profit targets. The SBA loan covers the $1.5 million; the earn-out payments must explicitly come from the business's net profit after SBA loan payments, and be fully subordinated.
Insider move
Lenders carefully review earn-out clauses in purchase agreements to ensure they are structured as true contingent payments, not disguised debt that competes with the SBA loan. They confirm robust subordination language and assess the business's capacity to handle both obligations.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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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