I am searching for tech services firms. Software dev, consulting (technical in nature), smaller managed services mixed with project work etc. I'm not talking about software product companies, or extremely high recurring revenue firms.
I have been informed by 2 separate brokers that SBA will not work with a deal like I've inquired about so they will not send me the CIM after the NDA. My background is in tech services ~25 years, and I would be structuring deals with 10%-12% of my equity. (The two brokers didn't even get that far to find out.) Once they found out SBA was involved the conversation was over. In my conversations with (1 bank, 1 loan broker) I've disclosed the type of firm I'm searching for and haven't heard specific concerns raised other than the typical vendor / customer concentration, DSR, my financial status, etc.
Questions:
#1 What is the SBA's view on tech services, consulting, non-product software development?
#2 I'm about to launch an outbound campaign to find off-market tech services firms so if I need to change strategies because SBA really will not work these deals I'd rather find out before I spend the money and time to find off market deals. Are there certain types of tech services firms that SBA does avoid?
#3 Does this merely sound like a couple of brokers playing defense on bad deals, knowing SBA does review things closely?
Am I wasting my time searching for tech services?
by a searcher from Northwestern University - Kellogg School of Management
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1 - Be operating (Fine.)
2 - Operate for profit (Fine.)
3 - Be located in the US (Uh oh, we used 30 offshore resources last year.... will we get to the end and inside of an LOI only for due diligence to knock us out and say they won't fund it since a substantial amount of the work happened in india?)
4 - Be small under SBA (Fine.)
5 - Be an ineligible business (This is hairy, like if DraftKings is a customer, and a big one, maybe more than 1/3 of revenue is from legal gambling activities? Is one of the owners incarcerated or is under indictment of a felony? Is it Lender owned in any way? Has someone defaulted on a federal loan or anything? Is there any lobbying activities or speculative activitives?) All of those could kick the company out of the lending process.
6 - Be creditworthy (This could be problematic..... did they make $1mm one year and lose $2mm another? Subjective and banks can reject loans because of it)
Having come from this industry, as you know, I feel it's a good business too, but it's my experience that bankers don't always understand consulting as well as inventory based businesses. I don't think you're wasting your time, but I might be a bit silent on using SBA until you're in the process and see a business you really like.
Sean