HELOC for down payment on self funded acquisition?

October 12, 2022

by a searcher from University of North Texas in Austin, TX, USA

I have about 100k cash on hand to buy a business via an SBA loan but am needing more cash (250k?) to be able to buy a decent sized business. I'm looking for something that has SDE of >$700k.

I'm looking at getting a HELOC to cover the gap in funds but wanted to get thoughts on this strategy. I've also thought about looking for friends/family to invest to cover that difference but I don't particularly like that route and would prefer it as a last resort.

What am I missing or is this a good path to get the needed funds to buy a business? TIA!

Reply by an investor
from Fort Lewis College in Denver, CO, USA

II think your preferred option is completely reasonable using your HELOC. Of course, you are taking on more of the risk. Every HELOC I have seen has an adjustable rate, so if business takes a downturn and rates go higher, that could be problematic. You are securing your SBA loan with a personal guarantee and you are securing your HELOC "equity" contribution with your house. Sounds like you are "all in" on this. The positive part of that is it keeps you really focused on making it work!

Reply by a lender
from Trinity College Connecticut in Boston, MA, USA

SBA guidelines allow a HELOC to be used for the required SBA Equity Injection, but income separate from the salary to be earned from the business being acquired must be available to make the HELOC payments. The easiest way to fulfill this is to have a spouse that has W-2 income, or for the owner/operator to have other verifiable income that can cover this.

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