Closed a non-SBA-eligible deal with a 50% seller note

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by an investor from University of Virginia
in Tampa, FL, USA

2h ago

Closed a non-SBA-eligible deal with a 50% seller note

One of our alumni just closed on a 20-year-old commercial cleaning master franchise in North Carolina. About $400K SDE for a $1.45M purchase price. It wasn’t SBA eligible. Final structure was 50% seller note, 40% senior bank debt, 10% buyer equity. Two things I find interesting here. (1) First, plenty of searchers walk the moment SBA is out, and I understand the instinct, but a seller willing to carry half changes the math considerably and there are banks that will sit behind that deal. (2) Second, the buyer kept their W-2 and brought in a partner to run day to day. That second piece comes up constantly in conversations with people early in their search. The assumption is that you quit, then you buy. This deal says otherwise, at least when you have the right operating partner lined up. Curious how others are thinking about both. Are you underwriting non-SBA-eligible targets, or passing outright? And how many of you are structuring around an operating partner rather than going owner-operator?

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reply by an investor 2h ago
from IE Business School in San Francisco, CA, USA

The 50% seller note solves the capital structure, but not the operating-governance risk. If the buyer keeps a W-2, I would underwrite the operating partner like a key executive and minority partner from day one: full-time start date, decision rights, cash compensation, equity vesting, replacement rights, bad-leaver terms, and what happens to bank or seller-note covenants if the partner exits.

Operationally, map which seller relationships and owner decisions must transfer to the operating partner in the first 90 days, then require a simple weekly operating pack. The structure can work when the partner has both economic alignment and real authority, rather than responsibility without control.

In this deal, did the operating partner already know the business or industry, and how were the economics and decision rights structured?