What's a standard way to structure a business deal with SBA/seller finance?

August 23, 2023
by a searcher in Rancho Cucamonga, CA, USA
I'm going to be making an offer on a business selling for $1.3 million. I plan on offering $1.2M. From what I've been told, the seller is open to carrying a note, and the SBA lender I'm working with has told me that getting this deal funded would be a "slam dunk" based on the financials. What would be the ideal structure for a deal like this? What is a standard ratio between SBA financing and seller finance? I have approximately $100k to put down on the deal. Thank you.
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
As an example, at a $1.3 million purchase price in theory most lenders are going to like to see $130,000 in equity. However, if you get the seller to take back a note for 5% or $65,000 that is on standby for at least 24 months, I think most lenders would likely consider the deal if it is strong and cash flows sufficient with you bringing another 5% or $65,000 in equity to the table. With you only bringing 5% in will keep you with some cash post closing in case something comes up. Most lenders do not want to completely deplete the buyer / borrower of cash reserves with the transaction. A lender might come back and ask for the seller note to be a bit higher if needed to make the cash flow work or if the lender prefers to see a lower loan to cost on the transaction. As far as how to term out the note after the first 2 years there are plenty of options. You could term it out over the next 10, have it balloon after a couple of years, do a modified amortization, etc. So long as you, the seller and the lender agree with the terms and they work from a cash flow perspective, you can get a deal done.
Hopefully this makes sense. If you need help analyzing your specific request or want to talk through options in more detail, I would be more than happy to do so at any time. You can ping me here or directly at redacted Good luck.
from Belmont University in Nashville, TN, USA