Compare three financing structures for buying out a sibling's share in an inherited business: SBA 7(a) bank loan, a sibling promissory note at IRS AFR, and an earn-out. See monthly payments and total cost side by side.
Use a qualified third-party valuation for SBA purposes. An independent appraisal typically costs $3,000 to $8,000.
Total buyout amount: $300,000
Applies to the sibling note and earn-out. The SBA loan is always modeled at 10 years.
Rate: 10.5% variable (Prime + 2.75%)
Term: 10 years (SBA max for business acquisition)
Requires SBA-approved lender, third-party business valuation, and documentation that the buyout is an arm's-length transaction. Guarantee fee (~2.77% on guaranteed portion) added to closing costs. SBA may require life insurance on the buyer.
Rate: ~4.5% (IRS AFR mid-term - verify current rate at irs.gov)
Term: 60 months (5 years)
IRS requires a minimum interest rate (Applicable Federal Rate) on installment loans between family members to avoid imputed interest reclassification under IRC Section 7872. The note must be in writing, signed, and ideally recorded. A promissory note attorney typically charges $500 to $1,500 to draft.
Rate: 0% (no interest, equal installments)
Term: 60 months (5 years)
Earn-outs tie sibling payments to business performance milestones rather than a fixed schedule. This model shows equal installments for comparison. In practice, earn-out triggers are negotiated (e.g., 20% of quarterly EBITDA). Siblings take on performance risk and the buyer takes on payment timing risk. Requires a detailed earn-out agreement drafted by a transaction attorney.
SBA rate as of early 2026 (variable). AFR mid-term rate from irs.gov/applicable-federal-rates. Earn-out modeled as equal installments for comparison only.
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Outputs are estimates based on your inputs and published program parameters. Actual lender and family terms vary. Disclaimer
How we built this. SBA 7(a) parameters reference SBA Standard Operating Procedures (SOP 50 10 7.1). The sibling note rate uses the IRS Applicable Federal Rate (AFR) for mid-term obligations, which the IRS requires for family loans to avoid imputed interest under IRC Section 7872. Earn-out is modeled as equal installments for comparison; actual earn-out terms are performance-based and negotiated separately.
Related guides: How to finance a sibling buyout of an inherited business · Earn-outs in family business sales · SBA loans for buying a family business