Creative ways to meet high asking price

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January 26, 2024

by a searcher from Colorado State University in Fairfield, CT, USA

I'm looking for creative ways to structure a deal to meet a high asking price while also keeping DSCRs in a reasonable range. One example might be a big seller note over a long period with low interest. What are other clever ways to achieve this?

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Reply by a lender
from University of Florida in Dallas, TX, USA
I've worked some SBA deals done with multiple seller notes that are forgivable based on financial metrics. While earnouts are ineligible for SBA purposes, you can do forgivable seller notes that if, for example, customer retainage falls below 80% in the first 12 months, $500k of a seller note is forgiven.

Putting a seller note on full standby for the first 24-months is another great way to mitigate some risk there. At the end of the day, a financial institution will most likely require a 3rd party business valuation. I would never feel comfortable going above, say, $100 - $200k above what an independent 3rd party says the business is worth.
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Reply by a searcher
from McGill University in Vancouver, BC, Canada
If these are competitive processes it will be tough to compete if you're not willing to meet other buyers on valuation. Structure mentioned above might be a solution to part of this however you're going to have to focus on your differentiating qualities...perhaps you're willing to assume full control of operation after 6 mo. vs 3 years.

If less competitive, and you think the asking price is fair, you can either apply structure (earn outs, WTB, rolled equity) to a point with the knowledge that this offer is less compelling.

Agree with the other comments above though...don't overpay and don't over-lever yourself.
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