Thread by @XavierHelgesen

SBA loans are the cheat code to American capitalism.

They allow anyone to transform overnight from an employee to an owner.

I am not just saying this. I used SBA to buy $2 million of cash flow for $300,000 down as Enduring Ventures’ second major deal.

Here’s how it worked:

First, an overview of SBA:

You can borrow up to $5 million for a business or $10 million if it is real estate heavy.

You can go even larger with some banks (I know one) that will lend “peri passu”.

That said, if you are not an experienced business manager and not wealthy…

It is far better to start with a $1-2 million acquisition.

This is big enough to set you for life, but small enough that the bank will have much more comfort.

If you buy well, you will have $300-500k in cash flow before debt service, even if you don’t grow.

You need an amazing SBA banker because the process is lengthy and you may have difficult things to work through.

I worked with a few mediocre ones before I found the exceptional one that closed our deal.

You can pay as little as 5% down if you do it right:

The trick is having the seller take 5-10% of the sale price as “full standby” seller financing.

They don’t get any payments until the bank is paid off. You can then treat this as equity.

You can also have investors provide the equity if you don’t have it.

Now to our deal. Because I was more experienced, the bank was comfortable maxing out the loan amount.

But I still had to go to the sellers and convince them to take more in seller notes. (Total transaction value was $6 million - 3x cash flow)

Mine was especially tricky because I was buying two similar businesses and combining them with the same loan.

It helped greatly that most customers were on monthly autopay.

There were some twists and turns, but I got it closed.

I pulled back out my $300k in roughly three months after close.

Debt coverage was over 2:1.

Had I done nothing else in my business career but close this deal and just make sure the businesses didn’t fail, I would have more money than I would need the rest of my life.

There is the matter of personal guarantees that scare many people away from this route.

If you find a good enough deal, a personal guarantee is an extremely favorable risk/reward trade off.

Also, in many states, all equity in your home is protected from creditors.

So if you are an ethical person and the business is struggling, the you would invest whatever time and money you had to fix it.

Banks will work with you to defer payments if you communicate a plan to them.

So the risk is real, but overstated.

There is nothing more valuable in your personal financial life than owning a stream of cash flows. (Ideally growing)

I highly recommend doing whatever you can to start or acquire this.

I have personally found acquisition 10-100x easier.

I firmly believe in the power of this to change many lives, so I am here as a resource for all of you out there on your business buying journey.

Don’t be a stranger. :)

This one blew up, lol. Grateful to you all for caring about the stuff I geek out about. I will reply to all those DMs in next few days.

Thanks for your patience. 🙏