Quick Question about how Search Fund Deals and SBA Loans

searcher profile

December 11, 2019

by a searcher from Harvard University in New York, NY, USA

Just a quick point of clarification, in a traditional search fund deal, does the searcher use SBA loans as part of the final capital structure of the deal?

If so, how do they deal with the Personal Guarantee of the SBA loan? Do the investors also agree to PGing the loan? (I find that hard to believe). If not, then the searcher is comfortable having all the downside exposure to the loan?

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commentor profile
Reply by a lender
from Sam Houston State University in 5324 Community Dr, Houston, TX 77005, USA
With an SBA loan, all owners of 20% or more of the business have to guaranty the loan. There is no way around that. The real question is on the ownership structure of the business. If the investors are less than 20% then they do not need to guaranty the loan. We would need to get some information around why their ownership is less than 20% if they are putting in the majority of the money. Also, we do want some financial strength on our guarantors. Feel free to reach out if you want to have further discussion. redacted or###-###-####
commentor profile
Reply by an intermediary
from California State University, Los Angeles in Sacramento, CA, USA
Hey Long, Part of the strategy our clients like a lot is the ability to see available options. There are many, many types of SBA lenders. There is SBA rules and lender overlays that dictate who they lend to.

Then there are 10 other categories of capital. Why not see all available options. That's what I share with my clients. If you want to talk more...let me know. Happy to share what I know.
thanks
Dan
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