Thread by @SBA_Matthias

In this thread, I am going to cover how it's possible to purchase a $5 Million business with $260,000 of cash down. I hope that you find this thread useful and educational.

#sba #smb #acquisitions #entrepreneurs

1/x: SBA requires 10% equity for business acquisitions. This 10% is based on the total uses of funds for the acquisition. The total uses of funds includes the business purchase price, working capital, the SBA guaranty fee, and the closing costs.

#sba #smb #acquisitions

2/x: 1/2 of the 10% can come from a seller note that is on full standby for the duration of the SBA loan. This means no payments can be made on this loan until it is paid off.

#sba #smb #acquisitions #entrepreneurs

3/x: I am going to keep this example high level, without diving into specifics like debt service coverage since I don't want to overcomplicate things.

#sba #smb #acquisitions #entrepreneurs

4/x: The below sources and uses chart is what we will use as a visual reference. Purchase price of $5 Million, SBA guaranty fee of $129,125 (based on a loan amount of $4,480,000), and working capital / closing costs of $78,875

#sba #smb #acquisitions #entrepreneurs

5/x: These numbers are for illustrative purposes only and will vary highly on a deal by deal basis, depending on the purchase price of the business, working capital need, 3rd party reports being ordered, etc.

#sba #smb #acquistions #entrepreneurs

6/x: Assuming that your particular deal meets the lender's debt service coverage ratio requirements with the appropriate stress testing to factor in for potential upcoming rate hikes from the @federalreserve, it may be possible to obtain 95% leverage.

7/x: One thing to keep in mind is that almost all SBA loans are variable rate. If your deal has tight debt service coverage to begin with, having 95% leverage may not be appropriate in your circumstance even if your lender is willing to approve it.

#sba #smb #acquisitions

8/x: If you are able to negotiate great terms on a 2nd seller note to reduce the SBA loan, and have a fixed interest rate on the 2nd seller note, that may be advantageous to you as a buyer, since you have less interest rate exposure, depending if there is a future Fed rate hike.

9/x: A structure like the one here below could be a way to mitigate interest rate risk on the bank SBA loan if you are working with a seller that is willing to extend both a full standby seller note for 5% of the total project cost & a 2nd one that is amortizing with payments.

10/x: This thread is for informational & educational purposes only. All situations are different & subject to bank approval. Run the numbers to see what is most appropriate for you. If you're looking at an acquisition, and would like to connect, please feel welcome to DM me.

11/x: I'm always looking to connect with folks across the SMB Twitter ecosystem, even non buyers. Feel welcome to drop me a line or put a time on my calendar if you're interested in an informal networking call: calendly.com/pioneercapital…