Structure Recommendations for Down Payment on an SBA Loan

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June 13, 2023

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

I'm looking to acquire an SBA loan and raise funds for the downpayment (let's assume $300k)

I'm looking for recommendations of deal terms that might be attractive to investors without giving up more equity than what an investor is investing (e.g. 300k investment for $3MM business = 10% equity)

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Reply by a searcher
from INSEAD in Boston, Massachusetts, EE. UU.
You can consider the structure you proposed ($300k investment for $3MM business = 10% equity) and offer a preferred coupon to investors. Historically, 6 to 8% was acceptable, however, you have always to check your investors' expectations. Sometimes you can combine the pref with a portion of equity ramp up, and offer investors a participation of 10% + X% to compensate risks. Again, you have to check your investors appetite and balance your ramp up accordingly.
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Reply by a searcher
from University of Notre Dame in Kansas City, KS, USA
Recommend you look into a preferred return and/or hurdle rate structure used in traditional PE funds -- similar structure would work here & similar to what Pedro described
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