How to Sell a Business Subject to an SBA EIDL Loan
There are two scenarios:
In the first scenario, the sales proceeds are sufficient to pay off the SBA loan (the easier scenario). In this case, one is required to contact the SBA and obtain prior approval, pursuant to SBA loan documents.
In the second scenario, the sales proceeds are not sufficient to pay off the SBA loan (the more difficult and complex scenario), resulting in a shortfall ("Shortfall").
With the respect to the Shortfall scenario, the Borrower/Seller must do the following:
Provide the SBA with information about the proposed sale (prior to closing)
Submit the required SBA documents for the sale to the SBA
Send the SBA the proposed Sales Agreement
Provide the SBA with a business valuation or appraisal of the business being sold
Provide the SBA with financial statements for the business being sold
Provide the SBA with a proposal for handling the loan shortfall (an Officer in Compromise, payment by the Guarantor, Loan assumption by the Buyer, etc.).
The proposed Sales Agreement should include a contingency clause stating that the sale is subject to SBA approval.
Obtaining SBA approval can take months and may require negotiations with the SBA.
This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship.
For more information on this and other topics, please contact Kevin via any of the channels listed below:
📧 kevin@kmckernan.com | 📞 718-317-5007