Seasonal Business & Working Capital

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June 17, 2022

by a searcher from Georgia State University in Boston, MA, USA

I am looking at a business that on paper looks great, minus one big problem…. The majority of its revenue is made May-September. By the time I go into LOI and close, the summer would be over and the company wouldn’t produce enough money during the off season to cover the SBA loan. I am just curious if anyone else has had experience with this and how they worked around this?

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commentor profile
Reply by a lender
from University of Wisconsin in Madison, WI, USA
I think there are a few ways to potentially address this. You could work with the seller to negotiate having them leave a specific dollar amount of working capital in the business that would get you through the slow season. Depending on the dollar amount, this may or may not be feasible if it increases the purchase price substantially, since that would increase your monthly loan payment.

Alternatively, you could find a lender that would structure in an Express Line of Credit as a companion loan facility and you could look to draw on that (making interest only payments) during the slow season.
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Reply by a searcher
from Wabash College in Indianapolis, IN, USA
All the SMB's I've seen are structured as S-Corps, so the sellers want to walk away with all the cash/receivables for tax reasons. If the owner/founder is still running the business, even if they don't get the numbers per se, they'll understand the industry mechanics and why there'd need to be some give and take due to timing - in my opinion, short-term seller note with beneficial terms to you is the best bet
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