Debt financing

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by a searcher from University of Minnesota - Carlson School of Management
in Minneapolis, MN, USA

7yrs ago

Debt financing

Is it typical for a searcher to take out an SBA loan with a personal guaranty to fund the debt side of the transaction? Do the banks make any requirements for a commitment from the equity holders in event of default? It seems like the personal guaranty is a heavy burden for a searcher to hold for the life of a transaction, especially when there isn't a lot of hard assets on the balance sheet.

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reply by a searcher 7yrs ago
from University of Texas at Austin

A lot of banks do SBA and non-SBA loans. Of course non-SBA will not allow you to take out as much debt, but there are plenty of industries where <50% leverage will still allow you to hit your return targets.

reply by a lender 7yrs ago
in Yorba Linda, CA, USA

In a typical SBA-financed acquisition, there are 1-2 personal guarantors and they are the operators. The investors are not required to guaranty if their individual ownership falls below 20%. Think of it this way, they have their funds at risk and the operator has his PG at risk, usually a relatively fair trade-off depending on how much ownership the operator has relative to the amount of equity he/she put in from their personal funds. I am happy to share my experiences on a call. I have seen mostly great success stories in my 25+ years of SBA lending (the last 9 of it exclusively dedicated to acquisition lending). redacted