SBA Appetite for Mature B2B SaaS Businesses

August 31, 2022

by a searcher in Denver, CO, USA

Hi Searchfunder Community!

I've seen a few variations of this topic posted but wanted to reframe it for a few compelling targets that I've come across. I understand that SBA lenders are not a great fit for nascent, FCF-negative, hyper-growth SaaS businesses, but what about their stable and mature counterparts? As far as I can tell, these businesses have been optimized for the near-term benefit of the owner opposed to sacrificing their compensation for sales & marketing investment (and therefore, growth).

Consider the following profile:

-$2mm of Revenue (100% Recurring on annual auto-renewing contracts)

-$1.2mm of EBITDA

-Low single digit topline growth, if any

-100% net $ retention for past 3 years

-0% churn for past 3 years

-10+ years of B2B SaaS business and demonstrated product market fit

-High-quality / resilient customers (think govt, fortune 500, utilities etc.)

Would SBA lenders be willing to lend to this business profile at a ~90% LTV? Or does the asset-light nature of the industry still turn lenders away? Obviously there are loads of other factors to consider but would love to hear general thoughts from those that are closer to SBA's for SaaS businesses. Thank you!

Reply by a lender
from University of Missouri in St. Louis, MO, USA

Trip, this should be financeable via a 7A loan. 90% advance rate might be tough on this due to the size but not impossible. What was the purchase price? Guessing based on the EBITDA you will be pushing $4-$5M in debt. a $4M 7A loan would have monthly payments of about $45,400/$545,000 annual. After you pay yourself (I will use $100,000 as a benchmark) and hitting a 1.5x DSCR you would probably need between $925k and $975k in cash flow. So this works technically. On these types of deals SBA lenders will have varying push points outside of the EBITDA/cash flow; down payment, post close personal liquidity and any ancillary factors (i.e. outside income) will be relevant. Long winded way of saying not impossible by any stretch but depending on the lender there will be additional factors to get the to 90%+ financing

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

Trip, we have had success funding businesses like this in the past at the 90% mark. The only difference is most SBA lenders want to see a 5% to 10% seller note (either on repayment or standby) to incentivize the seller for a smooth transition. I would be more than happy to talk options with you at any time at redacted

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