SBA Loans - San Diego
Lightning Commercial Funding
SBA and the Role of Seller Carry Backs
by Harlan A. Friedman
After reading the proposed SOP (Standard Operating Procedures) for the revised SBA 7A loan program it became plainly clear the importance of Seller Carry backs.
As a Financial Broker I always "push" seller carry backs for three reasons. The first is it helps the borrower with his cash flow if the seller is willing to hold a note. Second the lender likes the fact that the seller is still in the deal for training, etc, so to say, lastly it shows the confidence of the seller to both borrower and lender that they are willing to wait around for their cash while the new owner operates the business.
If a seller is not willing to hold any paper it almost makes that person and the transaction look suspect, demonstrating that they have no faith in the future cash flow of the business to make both the seller carry back payment and the first trust deed payment to the lender.
However with the advent of the new SBA SOP revision it now becomes a mandate that the lender will try to get a carry back for any goodwill value of the business. The gist of the proposed language is as follows:
Lender should explore seller financing collateralized by a lien position subordinate to the SBA lien - Amount of seller financing that should be considered - amount being used for the acquisition of intangible assets such as goodwill. SBA has verbally advised that if seller refuses lender must document.
As you can see from this blurb seller financing after August 1, 2008 the proposed effective date of the revision shall be more important than ever. Get your clients ready. Seller Carry Back Notes are here to stay.