Transitioning from SBA to Conventional Financing

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by a searcher from Wheaton College Illinois
in Charlotte, North Carolina, United States

3mos ago

Transitioning from SBA to Conventional Financing

Our group is wrapping up our first acquisition — a ~$4M ($1M SDE) SBA-backed deal — and we’re beginning to explore conventional financing options for future acquisitions. For those who have made the transition from SBA to conventional bank debt, any advice, lender recommendations, or introductions would be greatly appreciated.

Thank you!

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reply by a searcher 3mos ago
from University of Maryland in 4040 Civic Center Dr, San Rafael, CA 94903, USA

Hi! depends on the total check size looking for from bank. In my experience, SBA loans cover those small funding amounts (e.g. <$5M) however most middle market and regional banks just arent interested in anything sub $10M at reasonable leverage ratios (e.g. <2.5x), so there's a little bit of a gap in that $5M to $10M space (not saying no one would do that, just very light coverage / interest from traditional banks)...hence where SBIC mezz funds come in (in my experience will come in around $7M to $15M check sizes, generally minimum of $2M EBITDA)

reply by an intermediary 3mos ago
from University of Toronto in Toronto, ON, Canada

The experience is particularly uneven from bank to bank in the lower mid-market (although it can be uneven in any segment). In my experience, the best way to explore what may be available is a thoroughly articulated Deal Summary that has enough detail in it for the lender to gain comfort and interest in doing the financing. Lenders are looking for good reasons to be involved, or to reject quickly and move on. If you don't provide a serious Deal Summary, and just give high level details, or rely on conversations, you risk the latter, especially when it's a small deal. I would focus on the preparation process and a good document. redacted