2 QQs from an Early Self Funded Search

January 17, 2022

by a searcher from University of Virginia-Darden - Darden School of Business in Newton, MA, USA

With SBA 7A loans, has anyone used forgivable or full standby sellers notes to bridge valuation gaps or minimize the equity portion of a deal? Any lessons learned would be awesome. Playing with the levers for one of my first deals and curious if it ever actually works.

2) Anyone ever have a broker require you to sign up for/pay for their "premium service" to get access to additional information on one of their clients? It didn't seem like they were acting in the best interest of their client so I passed, but curious if pay to play is a industry standard I was unaware of.

Thanks for any feedback.

Reply by a searcher
from Columbia University in New York, NY, USA

1. Seems common from what I've heard, but I am 0/2 in submitted LOIs with these terms. A few challenges: Valuation gap can't be too wide to bridge (<10%) and assumes you can agree on a valuation multiple (many sellers I've engaged with don't seem to accept / understand valuation). Older retirees don't have patience for standby. Sellers may be reluctant to take the risk of a new operator (ie. why should I receive less value if you underperform). But biggest challenge has been buyer competition with others more willing to pay (or posture they will to get under LOI).
2. Red flag - agree, conflict of interest. Wouldn't engage with a broker that did that.

Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA

^redacted‌ - on the first, very common to use forgivable and/or standby features with a seller finance note. As ^redacted‌ mentions, just check with your lender as their own take and language that they want to see in the note. One the second question, I only know of one "brokerage firm" that does this. I inquired 11 years ago on a buyside and am still getting solicitations to "pay to see".

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