Current threshold for conventional (non-SBA) bank financing w/o PG

April 21, 2024

by an investor from University of Virginia in Washington, DC, USA

This question has been asked and answered on SF numerous times in the past, but lending standards are a moving target.

What is the general size (EBITDA) and credibility threshold required today to secure debt financing w/o a PG?

My understanding is that in 2021/2022 a clean, well established business with $1.5-2.0M EBITDA could find non-PG bank financing but today the threshold is... higher.... but where does it become viable? This is assuming bank debt at 3.0x (3.5x?) EBITDA on a business with multiple years of stable EBITDA.

I have an experienced CEO (late 40s, recent $20M+ exit in start up he founded) targeting an acquisition in an industry he has worked in for ~15 years. I also have deep pocketed equity inventors / advisors that are principals at investment firms / a mid cap buyout firm (but not in tune with micro buyout). We have a clear operational value creation plan and are targeting a huge fragmented industry. This would be deal #1 with follow on deals anticipated.

Would love to hear where the market is today, and also interested in intro conversations with any lenders / brokers that might have a POV...

Thanks!

Brian

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I concur with Thomas. I would add that every situation is deal specific and the requirements for PG could change based on the type of company and industry as well as the lender. Also, we are usually seeing maximum senior debt multiples or non-recourse in the 2 to 3x range. If they deal is backed by strong equity, you are at a low LTV / LTC, and the DSCR is 1.50x or greater, you are looking at a loan north of $10 million, then I think non-recourse is an option. Smaller deals it is very hard to find unless you want to give up what the SBIC lenders want.

Reply by an investor
from University of California, Berkeley in San Francisco Bay Area, CA, USA

You can find SBIC lenders who will provide financing to companies in the $1M-3M range. Expect to pay 15-20% interest rates + warrants. You can also find bank lenders who will provide non-recourse financing in the $2-3M EBITDA range as long as the company has a multi-year history of stable cash flows and 40-50% of the purchase price is in form of equity or other collateral.

+9 more replies.

Join the discussion