Where to borrow after reaching the SBA loan limit?

December 23, 2019

by an investor from New York University in St. Louis Metropolitan Area, USA

I acquired a large ecommerce business two years ago. I used an SBA loan and have reached the SBA limit. Where can I borrow money for my next acquisition?

Would some traditional banks finance 100% of a bolt-on acquisition? If not, what percentage of the purchase price would they require as an equity injection?

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

Assuming the new business has a collateral shortfall, size is the most likely factor in determining the ability to finance an acquisition. Most banks can do cash flow/leveraged loans without an SBA guarantee. However, the EBITDA size is typically the determining factor. It is difficult to finance a business on a pure cash flow basis until you hit at least $3M in EBITDA (and most banks, ours included is more likely starting in the $5-$7M EBITDA range. The only avenue I know if a mezz (mess-like) lender. We have partnered with a couple where they provide senior leveraged debt and we work on the working capital line. feel free to reach out if that is of interest. redacted or###-###-#### Also, for the SBA cap, it is the amount outstanding that is relevant, not the original commitment. Depending on how much the fist acquisition is out of the collateral you could look to refinance that conventionally and then use the SBA for acquisition 2.

Reply by a searcher
from Ohio State University in Chicago, IL, USA

Hi there. I have worked with non-bank lenders to finance 100% of the purchase price on smaller bolt-on acquisitions. In my experience, the answer to your question is based on the creditworthiness and size of your business. We were able to do it because the pro forma leverage (total debt/net debt to ebitda expressed as a ratio, inclusive of the add-on's cash flows and funding need) was the same or lower than when we originally financed the acquisition. In other words, our company paid down some debt since being acquired and we back-filled that "debt capacity" with a new term loan to finance the acquisition. This worked for me in businesses > $5M in EBITDA with a sophisticated lender.

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