Strong deal, weak PFS

lender profile

February 14, 2025

by a lender in Las Vegas, NV, USA

Working on a deal with a client that has a very light PFS, not much income or liquidity. However, the business they're trying to acquire is very strong and cash flows with a very healthy DSCR. The acquirer has 2 non guarantor investors putting up about 10-12% each and the seller is willing to carry a 5-10% note. So essentially, the LTV could be around 65% of the deal.
Does anyone have recommendations of lenders out here that are willing to look past the weak PFS of the main borrower to lend 4-5M on a strong business with 2 limited partner investors signed on? We have reached out to a few banks but wanted to check here as well.

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commentor profile
Reply by a lender
in Stuart, FL, USA
The lenders are not just underwriting the business, they UW the borrower as well. In these search funder deals, the investors almost always want to stay clear of personal guarantees and being on the loan so the lender is going to look at the MAIN sponsor that much harder. If he is weak from the financial and experience side, the investors just coming in with most if not all of the down payment isn't going to help that much. You are asking the lender to take a wild gamble on someone with almost to no skin in the game on a 4-5mm dollar deal. My suggestion, rework the deal and strengthen the buying side of things. Either bring on some working partners who will work in the business and be on the loan, buy only part of the business and have the seller stay on in a working capacity. Get a better main sponsor. The risk reward levers are too unbalanced for the lenders as currently structured.
commentor profile
Reply by a lender
from University of Georgia in Atlanta, GA, USA
One of the things that should be discussed is the age of the borrower. Is this a young adult fresh out of school that has the educational background in this industry. Have they shown with the limited income they have an ability to show some savings? OR is this a person in the middle of their career that is a high earner that shows they cannot manage money and amass wealth. Lenders treat those two things very differently.
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