Thoughts on Sourcing Capital & Structure for Acquisition

November 29, 2024

by a searcher in Overland Park, KS, USA

Target Acquisition Under LOI. Cannot do SBA Loan as less than 3 years old.

Purchase price $2.2M w/EBITDA of ~$1.1M, Seller Note for $700k, total needed to close is $1.5M.

Low capex & opex - expected to grow a lot in###-###-#### Requires additional hires and creating management structure and SOPs. Seller staying on as employee for 8 months.

What do you do and how?

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Reply by a searcher
from Queen's University in Toronto, ON, Canada

In Canada, where there is no SBA, banks will often (lots of caveats here) loan 2-3 turns of a flat previous three yr average EBITDA depending on industry, quality of revenue, etc. Given the purchase multiple is so low, you may still be able to close a decent amount of your funding gap with traditional bank debt considering typical DSCR requirements from banks.

Reply by a lender
from University of Missouri in Denver, CO, USA

I wouldn't say this is SBA ineligible. It is more difficult to get SBA financing without three years tax return, but I don't think there is anything in the SOP that strictly prohibits it. It would just have to be a strong deal otherwise to cover up this potential weakness.

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