Max leverage debate🚨

The SBA allows up to 90% financing for your first business acquisition.

Does it make sense to inject MORE than 10%?

Let’s see 👀

I’m making the following assumptions:

🔹$2,250,000 purchase price
🔹3.5x multiple
🔹$75,000 buyer salary
🔹 10.50%… twitter.com/i/web/status/1… 🔹 example includes $150,000 in working capital + SBA closing costs

Here’s how putting more cash down impacts debt service coverage:

Folks have been asking how your $5mm SBA availability can be leveraged to tackle larger projects with a 504 / 7a combo.

I’m working on one right now that will result in a business having $21 million total debt through SBA 7a and 504 loan programs.

Let me explain
👇 You can have up to $5mm in SBA 7a debt personally guaranteed at any given time.

Under the standard 7a program, the SBA Guarantees 75% of the loan.

So if you have an outstanding 7a loan of $2mm, that translates to $1,500,000 of guaranteed dollars.

The SBA 7a loan can be magical. Check out how this business used it to:
👉🏼 increase revenue by 50%
👉🏼 cut their debt payments in half
👉🏼 new cashflow stream: $250k/yr
👉🏼 improve cash position by $200k

All in one foul swoop. Overnight. Thanks to the SBA 7a loan.

Thread 1/5 He owns a niche online business with $6mm in annual revenue with the opportunity to acquire a competitor doing $3mm/yr in revenue. Both companies were profitable. He used 2 SBA 7a loans to refinance debt, get working capital, and acquire a competitor. 2/5

If your acquisition includes real estate, heres how the financing works

If 51%+ of the proceeds are going toward real estate, you can get a 25 year term

Otherwise:

You’d blend the “25 year real estate proceeds” with the “10 year business/inventory/working capital proceeds” 1/4 You can also split the loans.

If you can’t get a 25 year term, I prefer to split the loans vs blending.

1) When you sell the business, pay off the 10 year loan, keep the real estate, and become a landlord 2/4

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

Q1 is officially in the books. I closed out the quarter with a hair under $10 million in SBA 7(a) loans made to 9 different businesses – but I can’t take all the credit – I am blessed with a star-studded team of SBA’s pro’s around me. Here’s what the deals looked like:

5 business acquisitions

Fund-Ex’s creative structures and collateral neutral approach to SBA underwriting gives us an edge when it comes to acquisition financing, so it’s no surprise this made up HALF of my business this quarter.