One of the potential deal killers that I see again and again is the SBA Standby Agreement (SBA Form 155). An attorney associate of mine who specializes in deal structures and contracts reminded me of this fact and wrote the following about this subject. Thought you would find it interesting and helpful. "As a condition of loan approval, some SBA lenders routinely require that the seller execute the SBA Standby Agreement with respect to seller carried financing. In essence, the Standby Agreement forbids (or at leasts restricts) the seller from collecting or enforcing the seller's promissory note from the buyer, except as allowed by the SBA lender. Unfortunately, sellers often learn about the standby requirement at the 11th hour of the deal, after a purchase agreement has been signed, and after the buyer has satisfied or waived all contingencies. With the deal all but done, the seller may feel pressured into signing the document. Alternatively, the seller may refuse to sign the standby agreement and thereby jeopardize the deal, or the seller may extract further concessions (like a higher down payment) from the buyer as a condition of signing the standby agreement. This is what happened in a recent transaction that I was involved with. With no time under the contract to submit a new loan application to a different lender and the seller refusing to sign the standby agreement, the buyer was forced to substantially increase his down payment as an incentive for the seller to sign the standby agreement. These problems can be avoided. First, not all SBA lenders require standby agreements for seller carried financing, so buyers should try to find one that won't. Second, if the standby agreement is going to be a lender requirement, the seller should be made aware of this fact as soon as possible so the parties have time to address the issue without the pressure of a looming close of escrow." All SBA lenders have different underwriting criteria and they sometimes have different criteria within their vaious offices depending on the region of the country! On million dollar financing, deals that sometimes should be approved aren't because borrowers approach the wrong contact or department!
Categories: Business Purchase Financing