Many clients have contacted our law firm asking how to sell a business subject to an SBA EIDL loan. There are two scenarios. In the first, 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 respect to the Shortfall scenario, the Borrower/Seller must do the following: 1. Provide the SBA with information about the proposed sale (prior to closing), 2. Submit the required SBA documents for the sale to the SBA, 3. Send the SBA the proposed Sales Agreement, 4. Provide the SBA with a business valuation or appraisal of the business being sold, 5. Provide the SBA with financial statements for the business being sold, and 6. Provide the SBA with a proposal for handling the loan shortfall (an Offer 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.
Clients or their advisors having questions about the sale of a business subject to an SBA loan should contact Jim Shenwick, Esq.
Jim Shenwick, Esq 917 363 3391 jshenwick@gmail.com
Please click the link to schedule a telephone call with me.
https://calendly.com/james-shenwick/15min
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