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
The three common structures are an SBA 7(a) bank loan, a promissory note directly with your sibling, and an earn-out tied to future performance. This estimator compares the monthly payment and total cost of all three from your own numbers so you can see which is cheapest and which is most affordable month to month.
Yes. SBA 7(a) is regularly used to fund partner and family buyouts, but the SBA requires the departing owner to fully exit — they generally cannot stay on as an owner, and in most cases cannot remain as an employee beyond a short transition. You will also need a business valuation and typically a personal guarantee.
The IRS requires family loans to charge at least the Applicable Federal Rate (AFR) for the note’s term, published monthly. Charging less can trigger imputed interest under IRC Section 7872, meaning the IRS treats you as if you paid the market rate anyway. This tool uses the mid-term AFR as the default note rate.
An earn-out pays the departing sibling over time, often tied to the business hitting revenue or profit targets. It lowers your upfront cash need and shares risk, but it keeps you financially entangled with your sibling and can create disputes over how performance is measured. It fits best when the buyer is cash-constrained and both sides trust the numbers.
Usually yes — your sibling may owe capital gains tax on the sale, the interest you pay on a note or earn-out has its own treatment, and how the deal is structured (stock vs. asset purchase) changes both sides’ outcome. Because inherited-business buyouts also involve estate basis, consult a tax advisor and an attorney before signing.
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