Financing a deal in no man's land (> SBA and < Conventional)

October 27, 2023

by a searcher from Columbia University - Columbia Business School in Jacksonville, FL, USA

Deal has the following characteristics:
- 2.25M in EBITDA
- 5 - 6x multiple
- asset light
- can get to 7.5 w/ SBA and jr conventional

How can I finance the rest?

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Replies

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

We are a commercial loan brokerage shop with over 500 funding partners. I would be happy to have a discussion to learn more and see how we can help. However, the biggest challenge you are going to run into is the amount of leverage most lenders will want to put on the deal. Most conventional and non-bank lenders usually limit their leverage to 2 to 3 turns of adjusted EBITDA, so it can make it hard when you have a deal at a higher multiple. Usually you need to bring substantially more equity in, get the seller to carry back a larger portion of the debt, have the seller roll equity, bring in mezzanine debt, or do a combination of some or all of these.

Reply by a searcher
from Virginia Polytechnic Institute and State University (Virginia Tech) in Blacksburg, VA, USA

Well, first of all, it sounds like you’re overpaying. Sitting that aside, I don’t know why you’d think this couldn’t be done conventionally — it absolutely could. Credit markets are crap right now, but you can get conventional loans all over the spectrum. Where you may have trouble, however, is that a bank is unlikely to finance more than 60%. Normally you’d fill this gap with a mezzanine lender, but this deal is too small to be considered for any mez lender I’ve come across. You’ll need some combination of personal/investor capital, seller note or rollover equity to plug the gap.

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