Does anyone have experience doing a 'fund-less/self-funded' search?

searcher profile

October 20, 2020

by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA

I am interested in learning more about the path outlined in BuyThenBuild (book) which is a little different than the traditional search fund model. Particularly:
- Using a broker
- Getting an SBA Loan. (90% purchase price - is this actually possible?)

Questions:
- Does running a search exclusively using intermediaries (broker, lawyer, accountant, banker, etc.) for deal flow make sense?
- How do the economics work given it's (likely) a smaller business than a search fund target business?
- Does anyone heavily prefer this route over the search fund route? If so, why?


Cheers,
David
davidlobo.me

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commentor profile
Reply by a professional
from University of Minnesota in Minneapolis, MN, USA
As a small-time laywer, I have worked with a lot of buyers that have taken this route, and probably few-to-none of them would consider themselves "Searchers" or would even be familiar with the Search Fund world and its terminology/SOPs. They are just people buying a business through some combination of Personal/SBA/Seller/F&F financing, and they are doing so for any number of different reasons. You'd be amazed what some smaller community banks will lend against!

The common knock is that this operation is akin to "buying a job" and the HBR guide would argue that businesses in your price range are not likely to be "enduringly profitable." While I think those are valid concerns, as long as you are clear about your personal and financial objectives, the smaller, self-funded acquisition route might be just what you're looking for. Just do your due diligence! Good luck!
commentor profile
Reply by a searcher
from Indiana University at Bloomington in Bloomington, IN, USA
You might not want to rule out an investor. Because if you are acquiring a small company, the amount of money you'll need to close the gap between the SBA funded portion and your personal savings/investment funds will be small in terms of dollar amount. At small dollar amounts, investors may not be as demanding or feel the need to be as involved. If you can find an investor to put up that small amount on reasonable terms, without requiring much control or management input, then it's much like the 90% SBA loan you describe, you're just sending out 2 loan payments per month instead of one. Added bonus, you might get the investor to let you defer the first year of payments or provide some other kind of flexibility that you couldn't get from a bank.
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