this post was submitted on 16 Nov 2023
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Business broker here.
A $6-$7M business can be purchased using a maximum of $5M from an SBA loan and then either seller financing or a conventional bank loan.
Plan on bringing around $1M to the table of your own money or from private investors. You may be asked to put down 10% of the purchase or supply your own working capital once you take over.
Your story matters. The bank and the seller need to feel confident your team has the experience to run a business of this size and industry.
You could get a maximum of 10mill from the sba to get a small business. They'll give five for the business and five for the real estate. Most people end up making more on the real estate imo.
Depends on the industry, but expect the lender to look for a debt service coverage ratio of 1.5 - 1.75 to secure a $5M SBA 7a. This means that the cashflow (including OP's salary) needs to be 1.5-1.7x the annual debt service amount. If your ratio is less than 1.5, you'll have a hard time securing a multi-million dollar 7a loan. Debt-service ratio is the most important metric in securing bank financing, FYI. Also, 15% down may be a more realistic expectation than 10% unless OP has a strong narrative. I'm in the same boat as OP trying to do the same thing now. DM me any specific questions.
This is interesting, I found this out recently but more as it related to purchasing a commercial property. If the property is leased or will be leased, the income from the tenants should be at least 1.5x what the mortgage is (or whatever it's called in that scenario)
Can be difficult to get seller financing with an SBA loan
It’s actually quite popular to pair SBA and SF.
Thanks. I read in Walker Deibel’s book Buy Then Build that SBA is hesitant or has restrictions with SF. Encouraged to hear it is popular, as that was my plan before reading the book.
Or OP plus a partner can each borrow $5m towards the same business.
This is fascinating; thanks for the insight
my experience with SBA was absolute crap. they would not lend me a penny, eventhough I was willing to put 50% of the price. SBA are piece of shit. All they wanted to do was make me go on seminars and give me useless advice.
You need to work with SCORE to develop a business plan. The SCORE people usually have the pipelines to the lenders.
yup did that as well.
Maybe if you went to those seminars you’d understand what SBA actually does
I did go and did understand what they did. still of opinion that they are useless.