Financing a niche company

August 22, 2024

by a searcher from Duke University - The Fuqua School of Business in Denver, CO, USA

I came across an interesting opportunity, but the broker was hesitant on a deal contingent on bank financing (specifically mentioned SBA). I think it was partly due to this being a service-oriented business in a niche space where banks don't have a background in dealing with this type of company. It's been around for decades and last 5 years have been quite consistent (growing low-single digits) with healthy margins.

Is it more about finding the right SBA bank (SBA + conventional since over $5m) or with these very niche industries, what would be another way? The seller wants something stronger than a preliminary approval (tax records match P&L, the operating structure is quite simple with very little addbacks outside of salary).
Rough numbers: price $9M, $1m rollover, $2m equity, so financing the $6m.

Reply by a lender
from University of Southern California in Los Angeles, CA, USA

Hi ^redacted‌ - I'd love to take a look at this deal. Financing a niche services company isn’t a drawback—in many cases, it can actually be a strength. Niche businesses might be more defensible and the fact that this business has been operating for decades only adds to its credibility and makes it more attractive for SBA financing. Given the deal size, this would be structured as a pari passu transaction. Only a small group of lenders consistently close a meaningful number of pari-passu deals. We did 8 such transactions last year. The goal should be getting to a credit-approved term sheet. A seller might want something stronger than a term sheet, but a credit approved term sheet is typically strong enough to keep the seller engaged and move the deal forward. You can then promise the seller a timeline to get a commitment letter. From my experience, as long as the deal is making progress, the sellers are typically comfortable. While not every bank handles pari passu structures, we work closely with lenders that routinely fund them and understand how to navigate these approvals efficiently. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can reach me here or directly at redacted You can also click here to schedule a meeting with me: https://cal.com/ishan-jetley-3d73m8/30min. Look forward to chatting!

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