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Best Practices: Non-Compete Agreements: When Does an SBA Lender Need One?
By: Tim D'Lauro, Esquire
When a Buyer is considering acquiring a new business, both the Purchaser and Lender should consider whether the Seller or any of its key employees could pose a threat to the newly acquired enterprise. If so, in order to protect the new venture, a non-compete agreement becomes a critical component to the purchase, one that helps to ensure the new business’ success. A non-compete agreement typically prohibits the Seller, or related parties - including the principal(s) or key employee(s) - from performing similar work in the same or a similar industry over a certain period of time within a given geographic area. While the SBA does not have specific requirements for non-compete agreements (other than the optional provision set forth in the Loan Authorization Boilerplate), it does require that the Lender engage in prudent lending practices when closing SBA guaranteed loans.  If a Lender does not obtain a non-compete agreement when financing a change of ownership transaction with an SBA loan, and the Seller continues working in the industry directly impacting the new owner’s business, and the new business subsequently fails as a result, the SBA would have a basis to issue a recommendation for a repair or denial of the SBA guaranty. 
IN THE SPOTLIGHT
Katherine D. Tohanczyn, Esquire
Katherine is an attorney in the firm's Fort Washington office. She concentrates her practice on commercial financing real estate and corporate law with a focus on commercial lending and government guaranteed lending. In this capacity, Katherine represents financial institutions nationwide, including national banks, community banks, credit unions and non-bank lenders. As a closing attorney for commercial lenders, Katherine prepares and reviews loan files for SBA 7(a) and conventional commercial loans, confers with loan processors and in-house counsel, and drafts, analyzes and negotiates loan and finance documents. She also assists lenders with loan modifications sand loan work outs. Additionally, Katherine investigates state and federal regulatory issues to aid in the representation of commercial lenders before the US Small Business Administration on a variety of policy and SBA guaranty related items.

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