Cap Table Structure for Minority Investor

by a searcher from INSEAD

4 months ago

Up until recently, I've been looking at funding a purchase with a combination of my own capital + seller note + SBA / traditional loan.
Here’s the challenge: I own several rental properties, and the SBA requires a PG on any property where I hold more than 25% ownership. To avoid putting a lien on these properties, I’m looking to bring in a minority investor who can help "bridge the gap" and right-size the SBA loan, effectively reducing the need for extensive collateral on my end and also help me take on a bigger transaction.
Could someone help me understand what the cap table might look like in this scenario? Specifically, how would the minority investor’s equity and ownership be represented, given that I’m contributing most of the capital and providing the PG?

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lender from Eastern Illinois University

Just for clarification on the SBA side. the SBA only requires a mortgage on a property where you have 25% or more equity in the property. But it has to be a property wholly owned by you or you and your spouse (even if in an LLC or Trust they will break through those if you are the ultimate owner). If you own any of your investment properties with outside partners, it does not matter how much they own, they cannot take those properties as collateral. They cannot require outside partners to pledge equity on a deal they are not involved in. Hopefully this makes sense. I am not sure if you mean to say equity or ownership in your post when discussing the 25%, but I want to be sure you are not eliminating the SBA when there may be a way you can use it. If you have questions you can reach me here or directly at --@----.com

4 months ago | like reply | 0 likes

professional from Embry-Riddle Aeronautical University

There are people that that will help you with a portion of the moneys down that the SBA wants you to put down.

4 months ago | like reply | 0 likes

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