SBA financing option recommendations - terms, rates, industries
April 25, 2024
by a searcher from Oregon State University in Monterey, CA, USA
hey all, I'm talking to a few lenders but wanted to know if others in the forum might be able to accelerate my learning.
I'm looking at a manufacturer with an asking price that would have made math sense when rates were lower, but are hard to pencil at the stricter end of SBA lender requirements (problem for everyone right?). DSCR###-###-#### for instance. I actually don't hate their valuation, it's high but somewhat based in reality for the opportunity and margins. I think a reasonable price can be had regardless.
Are there lenders that do more than 10-year terms on SBA 7a? no real estate involved. What about banks that do more manufacturing businesses and so might be ok with slightly lower coverage ratios and rates? Thanks for your insights.
And yes, I'm looking into adding more equity too, as another option.
from University of Tennessee in Nashville, TN, USA
There is a general disconnect that I have observed over the past 6-7 months of many Advisors/Brokers (A/B) to the financial realities of transacting and I'm not sure why. The cost of capital has increased substantially within the past 24 months and, yet, ask multiples in several industries have increased, especially in the micro-SME space. It may be wishful thinking on A/B's part that a PE firm or Strategic will swoop in and pay an inflated EBITDA multiple for the business. It may be that the Seller had a specific price-point in mind and the A/B wouldn't have secured the listing without marketing the inflated price. I don't understand it; it is what it is.
You make your money when you buy, not when you sell. Over-paying for a company is why most PE firms can't deliver on their target investor returns. There are thousands of businesses available for sale but most are overpriced relative to their market-dictated enterprise value. Don't fall in love with the business before you transact. Keep looking for a deal that makes sense and move expeditiously when you do.
On the topic of lenders, and regardless of my past dissonance of the agency, the SBA takes the cake on asset-light, non-real estate transaction term loan amortization periods. You can avoid the SBA with the right financial partners, as there are several businesses that partner with Searchers when the size of the transaction is larger (i.e. SBICs typically require $2-4M EBITDA minimums). Finding the right partner with available capital may take some time.
from Creighton University in Los Angeles, CA, USA