Can a line of credit sit alongside an SBA acquisition loan?

Yes. SOP 50 10 8.1, App. 15, Para. C.3.d, gives the borrower the option of a conventional or government-guaranteed line of creditline of creditA credit limit you can draw on, repay and draw on again. to support working capitalworking capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition.

A change of ownership term loan normally holds a security interest in the receivables and inventory. Extra rules apply if the line must be in first lien position on those acquired assets.

The first-lien condition

The lender can release those assets from the term loan only under these terms:

• No less than 20% and no more than 50% of day-one availability goes on the line at closing.
• That portion must fund the matching portion of the purchase.
• The lender keeps documentation of compliance in the loan file.

Day-one availability is the amount available on the first day loan proceeds are available. For an open revolver, use the committed limit. For an asset-based line, use the amount on the initial borrowing base certificate.

An example

On a $200,000 committed revolver, between $40,000 and $100,000 would be applied to the purchase at closing.

When this does not apply

The conditions do not apply to a line in second lien position, and the SOP gives SBA Express as an example. The lender may not use the option if day-one availability would be under 20%, given the line size or collateralcollateralProperty a lender can take and sell if a loan is not repaid. advance rates.

A related rule

If the lender waives equity on a Business Expansion or Owner Buyout, working capital must come from existing cash or a line of credit. See App. 15, Para. C.2.a.