When the Business Sale Includes Real Estate, We Handle the Financing

The most common way real estate financing derails a business sale timeline is starting the process too late, after the purchase agreement is signed and the escrow clock is already running. We ask to be looped in as early as the letter of intent stage so we can flag realistic financing timelines before they are written into the contract as contingency deadlines.

Once engaged, we run the real estate financing on a parallel track to your escrow, not a sequential one. That means ordering appraisal, environmental, and title work as soon as the property and buyer are identified, rather than waiting for other conditions in the purchase agreement to clear first. Most delays we see are avoidable: a lender engaged too late, or a financing contingency that did not account for how long an SBA or conventional underwrite realistically takes for the specific property type involved.

If a delay is unavoidable, such as a franchise brand approval, an environmental issue, or an appraisal that takes longer than expected, we tell you and your client immediately, with a realistic revised timeline, rather than letting the deadline arrive as a surprise.

SBA loan programs allow a seller carryback note to sit behind the SBA debt, but only if it is structured on full standby, meaning no payments of principal or interest to the seller for a minimum period set by SBA policy, most commonly the full term of the SBA loan when the carryback is counted toward the buyer's required equity injection. If the seller note is not counted toward the equity injection, a shorter standby period may apply depending on current SBA policy and the specific loan program.

The standby requirement needs to be documented in the seller note itself, and both the seller and the buyer need to understand it before it is written into the purchase agreement, not after. We have seen deals where a seller expected carryback payments during a standby period that SBA rules do not allow, which creates a difficult conversation right before closing.

We coordinate the seller note language directly with the SBA lender's requirements so the standby terms are correct the first time, and so nobody is surprised at the closing table.

In most cases, yes. Financing the real estate separately from the operating business, an OpCo/PropCo structure, gives each lender a cleaner underwrite: the real estate lender evaluates the property on its own income and value characteristics, while the business acquisition lender evaluates working capital, inventory, and cash flow without the added complexity of real property debt service in the same loan.

There are situations where a single combined SBA 7(a) loan covering both the business and the real estate makes sense, typically when the real estate value is a smaller portion of the total transaction and combining the two simplifies the buyer's closing. But once the property represents a meaningful share of the purchase price, separating the two usually produces better terms on both pieces and reduces the risk that one lender's conditions hold up the other.

We look at the actual numbers on your specific deal, rather than defaulting to one structure, and tell you which approach gives your buyer the best combination of terms and closing certainty.

It can. A real estate lender sizing a loan around debt service coverage looks at the buyer's total obligations, and a contingent earnout payment, or a seller note that converts to a payment obligation later, can affect how a lender views the buyer's ongoing debt capacity, even if the earnout is not a fixed obligation today.

The specifics matter a great deal here: a small earnout tied to a defined performance metric is treated very differently from a large deferred payment that functions like additional purchase price debt. We ask to see the purchase agreement's earnout language early so we can flag anything that might concern a real estate lender's underwriter before it becomes a last-minute issue in the loan committee process.

In most cases, a well-structured earnout does not prevent the real estate financing from closing on schedule. The risk is when the earnout terms are unclear or unusually large relative to the transaction, and nobody flagged it to the lender until underwriting was already underway.

Commercial real estate loans, unlike residential mortgages, are not subject to RESPA's referral fee restrictions, since RESPA applies specifically to federally related mortgage loans on one-to-four family residential property. That said, referral fee arrangements on commercial transactions still need to comply with state real estate licensing law, which can restrict fee sharing with parties who are not licensed real estate or mortgage professionals in that state.

Our own approach is straightforward. We are compensated by the borrower or the lender at closing on the financing side, and we do not share fees with non-licensed parties. What we can offer every business broker and M&A advisor who refers us a client is a financing partner who protects your relationship with your client and your commission on the business sale, since we are paid separately on the real estate side, not out of what you are owed.

If your state or your brokerage has specific requirements around referral compensation, we are glad to have that conversation directly, and we would rather be transparent about it upfront than have it become a question after a deal has closed.