Post-Close Liquidity for SBA Loan

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May 31, 2024

by a searcher from University of Southern California in San Francisco, CA, USA

Hi everyone! I'm working on a deal where the biggest feedback I've gotten from banks is my post-close liquidity isn't enough for them to feel comfortable lending to me even though they like the cash flow of the business. How have you navigated this?

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Reply by a searcher
in United States
How much post-close liquidity do you project? And how much are they requesting? I haven’t had that issue with an SBA loan, but have seen it in “real life.” For example, assume you buy a business that holds $100k in inventory and historically has $100 in AP. You don’t need any capital to fund the inventory because the vendors are funding it for you. If the vendors aren’t as comfortable with you as the new owner (you’ve never run a business, you don’t know the industry, they simply want to take advantage of the situation, whatever), they might lower your credit limit to $50k. You now need to come up with $50k to fund the inventory needed to support the cash flows. If you don’t have it, cash flows go away and the banks lose their money.

This is obviously a contrived example, but I hope it is clear why the banks might have concerns. You’d need to dig into what you are projecting, what are they asking for, why might they be asking for it, etc. If you don’t think your lender is being reasonable, shop for a new lender.
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Reply by a searcher
from University of Southern California in Mid-Atlantic, USA
^redacted‌ thanks for the tag. ^redacted‌ you have the right experts at your fingertips here.

I am confident ^redacted‌ has a team that can offer you the guidance and expertise on this and likely in your specific industry. ^redacted‌ has access to a variety of lenders, so this may offer you some flexibility in your approach. Either way, you’ve come to the right place.

Good luck! - JC
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