What are the key ways to get an FBA business qualified for SBA financing?

April 10, 2020

by a searcher from University of Arkansas at Fayetteville in Memphis, TN, USA

I am looking into buying an Amazon FBA business, and I would like to get SBA financing for the deal. I see through a lot of online brokers that some qualify for SBA financing, but most do not. What are the key thing that I should be looking for to identify an FBA business that is qualified?

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Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA

Good points by Colin. A couple of other points, 1. it is the buyer who qualifies not the seller (Qualifications, experience, financial capability, etc.). SBA deals are mostly based upon cash flow so if you came in with 50% down payment vs. 10%, that could make a big difference in the Debt Coverage Ratio. So if they are saying out of the get go that it doesn't qualify, then the cash flow probably doesn't justify the price 2. If you read the Amazon contractual wording very closely, in a change in ownership, the goodwill of the business, the recommendations and ratings, do not transfer to the new owner. The brokers who specialize in these types of sales say that Amazon does not hold to this contractual wording and that it "usually" happens. We had to have some wording in the Purchase Contract that was a multiple step close to ensure that it did happen prior to closing. Which it did but there was concern as without that, the business would not have been a good purchase. Also, some bankers may have more experience with FBA businesses than others and may feel more comfortable doing them.

Reply by a lender
from University of Missouri in St. Louis, MO, USA

The main problem is you are beholden to Amazon. They could change their practice/pricing/timing three years in and what is your remedy to counter? This would be comparable to have a massive customer or supplier concentration. This isn’t to say it isn’t financeable. More important is to see this as not just an ebitda or cash flow deal. I have no doubt you could finance this with a transactional SBA lender since they make the bulk of their money upfront. You however have a PG for 10 years so you would want to make sure the product has some kind of niche that Amazon needs (or at least cannot replace) or else you could be in trouble a few years in.

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