Challenges facing searchers in SBA financing

Hi all, I’d like to introduce myself. My name is Keira Hamilton. I’m a commercial loan broker specializing in SBA financing for business acquisitions. I’d like to share some of the challenges I see searchers face when seeking SBA financing, and my own story of buying a starter business.

1. Light on liquidity relative to total project cost.

There are a variety of ways to source the cash injection for an SBA deal. For searchers who want to leverage investor funds and seller notes, here are a few things to keep in mind.

Lenders still want to see some skin in the game from you personally. The specific amount varies lender to lender, and it is always a balancing act with your resume. If you have industry experience, they are generally more willing to accept a lower cash injection. Strong experience also makes it more likely that you will be able to utilize a seller note towards your cash injection. While it’s technically possible to cover the full 10% with a seller note, I don’t see this happening for borrowers without directly relevant experience.

2. Lack of industry or management experience.

It is certainly possible to acquire a business that does not directly correlate with your experience. However, it will limit the number of lenders interested in working with you and limit the financing options available to you. For example, as aforementioned, it’s less likely that you will be able to utilize a seller note towards your cash injection.

This becomes more relevant the larger your debt request. It is really challenging to place deals $3M+ when the borrower does not have industry or management experience, especially when they also have less than 5% of the total project cost liquid.

Sometimes searchers will try to leverage their investors’ experience, but I only see this really make a difference if the investor is willing to PG.

For early-career folks without management experience who are pursuing their first acquisition, consider the challenges you are likely to face with higher SBA debt requests.

I meet searchers who are very capable of being excellent operators, but are simply pursuing deals that are not a good fit based on their personal liquidity and experience. For those folks, know that it’s okay to start smaller. Your first acquisition doesn’t need to be your last. Consider buying a starter business. Operate it for a few years and improve profitability. Then you can expand, or exit and roll the proceeds into the cash injection for a larger deal. At that point, you’ll have the cash and experience to qualify for better terms and have more lenders interested in working with you.

This is my starter business story: In 2023, I bought a laundromat in San Francisco for $190k. I operated the business for 16 months, generated $285k in revenue, and then sold the business for $300k at a 3.7x. I have the proceeds set aside and plan to put them towards an SBA cash injection for a larger acquisition in a few years.

During my time as an operator, I learned valuable lessons in a relatively low risk environment: how to hire and fire employees, the most effective ways to resolve customer complaints, and how to improve operational efficiency, to name a few. Perhaps my most valuable takeaway is the lived day to day experience of being a business owner, of really understanding that at the end of the day, it all comes down to me. I am the person most responsible for the success of this operation.

I started with a very small business. Not everyone needs to start that small. But I think there is great value in the idea of a starter business. Like a starter home, it’s an opportunity to buy what you can afford while retaining 100% equity, then sell for a profit and make a larger purchase.

If you want to discuss small business acquisition or SBA financing, feel free to shoot me an email at redacted