Interest only loan for business acquisitions

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January 19, 2022

by a searcher in Chicago, IL, USA

Hello SearchFunders

I have a 20% deposit for a 1.5M EBITDA deal I'm negotiating in the construction sector and I'm wondering whether it will be possible to obtain an interest only loan or a loan where there amortization period is 10 years?

The deal falls apart if its fully amortized over 5 or 7 years. I am using a 7% interest rate to calculate the deal.

I'm wondering whether a 7-10% interest only loan (Non-SBA) would be possible to make this work?

Thank you

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Reply by a searcher
from University of Notre Dame in Dublin, OH, USA
For this sort of financing, you'll need to find a non-bank lender -- potentially an alternative credit firm, but I would also consider family offices / deep-pocketed individuals. A capital partner of this sort may give you low amort (1-5% annually) or even no-amort financing, but note that it will probably be expensive (low-to-mid teens cost of capital).

Unfortunately, this will be an uphill slog. Businesses in the construction industry are often poor credits: they are generally cyclical, project-based, and they sometimes have bonding requirements. Though the equity story can be attractive, the credit-story can be tough.

To be sure, it's hard to judge these things with limited info. Feel free to message me if you'd like to discuss further.
commentor profile
Reply by a searcher
from University of Illinois at Urbana in Ann Arbor, MI, USA
Yeah, IF you can get debt-only financing, it's gonna be a high rate for no amortization. So, practically speaking, this ends up needing more/outside equity, to reduce the debt financing, so that it will pencil.
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