30% IRR with 7a and real estate?

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April 18, 2025

by a searcher from College of William and Mary in Champaign, IL, USA

I have a deal under LOI which includes both an operating business and the real estate in which it operates for about $4mm total purchase price, with slightly more than half that amount allocated to real estate so I am getting a 25 year term 7a loan. SDE is about $700k and I believe I can conservatively grow that by 5% per year for the next 5 years. I have an investor willing to invest about $200k (half the equity injection) but they are insisting on an SBA compliant structure (without a PG, so staying below 20% of the economics) which will provide a 30% IRR. My understanding is that given the real estate and 25 year term it makes difficult to achieve the 30% IRRs most institutional investors want, short of giving a huge step up which would likely incur the 20% PG requirement. Has anyone dealt with this or have any advice on how to move forward?
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Reply by a searcher
from The University of Chicago in Nashville, TN, USA
You may want to look at finding a leaseback partner to work with. The Seller would still be able to sell their real estate, if that is a requirement, while you wouldn't need the additional upfront capital.
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Reply by a lender
in Falmouth, MA, USA
Reach out at redacted I will be happy to discuss. There are a few ways to make sense of this transaction. To better understand the IRR, we would typically look at the CRE and the business purchase as separate transactions.
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