Thread by @SBA_Ray

This is the story of a resilient searcher 3 years out of college with an IB background who wouldn’t take no for an answer and used an SBA 7a loan to acquire a business for $5 million despite some big hurdles.

A thread about resilience in searching. 1/16

The searcher found me through social media pre-LOI. He went under LOI end of April. We began to dig in very deep because I knew the loan would be difficult to approve. 2/16

Large Loan, Construction business, valuation seemed high, 100% YOY growth in 2021, young buyer, no direct industry experience, no advisory board. That said he was incredibly smart and wise beyond his years. 3/16

Couple important facts:

There were 2 individuals at the company with no ownership that were basically running the company

Buyer had 2 “friends and family” investors but also had enough capital to do the deal himself but that would have drained him down to nothing. 4/16

In mid-early May I gave him a path forward. I remember we discussed it over the phone while I was in Atlanta for the NAGGL conference. I started the conversation with “this is going to be difficult, but we have a potential path forward” 5/16

I suggested a max of $3.8mm leverage, leaving a whole of around $1.1mm when you take into account closing costs and working capital.

Also, we needed to tie in those 2 key employees to the business. That meant giving them a small piece of equity.

This was a long shot.
6/16

The structure was great for the buyer. 2x DSC in 2021, but because of the steep growth trajectory, 2020 DSC was only 1.19x. Is the growth in 2021 sustainable or a Covid boom? 7/16

The buyer came back the next week and said the seller was receptive to our plan, and agreed to increase the seller note and put it on full standby. It was full steam ahead. 8/16

I submitted the loan for a pre-flight with my CCO the next day. She saw what I saw and felt the need to get on the phone with this searcher to learn his background, discuss some intricacies of the business, and his plan for how he was going to run the business 9/16

The searcher responded to this request with a curveball saying that the seller wants to now split the difference with the lender (me) and since that wasn’t an option, the deal was dead. I was not surprised by the sellers decision. I knew it was a long shot 10/16

About a week later I get a call from the searcher. He had been working with another lender on this same deal and thought he had an option for higher leverage, however when it got to committee, they wanted additional PGs. 11/16

He wanted to know if our offer still stands. So the seller is on board? I wanted a signed LOI in writing before spending any more time on the deal. He sent me an email with an attachment. It was a new signed LOI with the terms we had discussed. Game time! 12/16

He had the call with my CCO. After the call, I think her words were “I love him.” We issued a proposal with the following structure:
- $3.8mm SBA 7a loan
- $800k seller standby note
- 10% buyer cash injection
- $340k working capital
13/16

The key employees were given a small amount of equity with an incentive plan to earn more after year 1. We closed about 60 days later. 14/16

Because we did the hard work upfront, underwriting was a breeze. Commitment Letter was issued as agreed. The searcher was fantastic in closing. On the ball, responsive, making it happen. My closer was also fantastic. Late nights, 1am emails - this one came down to the wire! 15/16

Sometimes your deal will die multiple times before it gets to the finish line. Take a lesson from this searcher. Don’t give up! 16/16 #sba7a