Hey everyone... Any ideas.
I just had a conversation with the Senior Vice President of a bank for an SBA loan on a business acquisition I'm working to do.
I just sent the following email to some advisors and also wanted to post it here for any other ideas or recommendations as well.
I just got off a call with the Senior Vice President of the Bank of Tampa Bay...
My investors and I CANNOT do an SBA guaranteed loan because of the likely collateral shortfall there would be with the company.
Even with the $2.2 million in manufacturing equipment listed on the books.
The SBA doesn't consider that amount.
They consider the "real value" of the equipment.
Let's say that is $1.1 million just for argument's sake.
They would then halve that amount to about $550,000.
My investors and I would have to then come up with the rest of the collateral from our personal assets - homes, cars, etc - to cover the remaining amount on the loan to cover the loan.
That is a no-go for all of us. I am willing to do a personal guarantee. But they said this is on top of the personal guarantee.
If none of us owned any assets like homes and vehicles this requirement would go away. But because we do, the SBA makes the banks hold these assets as collateral if there is a shortfall.
I will start reaching out to my other investors to see if we can raise the full amount for the purchase.
This is unlikely at this stage.
But the only other way would be to do 10% down and 90% seller financed deal or something along those lines.
Say $500,000 down or about 29% of the purchase price. Then the rest would have to be seller financed.
And the seller already told me he doesn't want to finance more than "maybe" 10% of the deal so this last scenario is highly unlikely.
Unless you can think of any other options these are the two things I can think of to keep moving things forward on the company... or really any transaction requiring SBA financing.
If I missed someone please let me know.
Update as of now...
***
Figured out a potential solution...
The update as of now is I'm reaching out to more banks, reaching out to my investors, and working to get the deal done.
So far, I've talked with one banker who said the way to get around having to put my house up as collateral is with their bank you only have to put the house up as collateral - if the house has a certain amount of equity in it.
Our house is worth around $475k and we owe about $283k on it.
He said if we took out a HELOC - which we were already considering and have now put in an application for - for around $100k or so this would take the equity in the home to beneath the threshold they require so they wouldn't need the home as collateral.
Because of this, I submitted a sales and purchase agreement yesterday contingent upon financing, among a bunch of other stuff. And any time during due diligence I can kill the deal for any reason "at buyers sole discretion."
They have until 5 PM EST today to accept the deal.
The banker gave me another update a bit ago and said the deal can move forward for now... But the bank may require others to come as as personal guarantor's or me and my investors may need to bring more money to the table.
He couldn't say how much until the deal was in underwriting but my guess would be another $100,000 to $250,000 down based on previous conversations.
I'm also continuing to reach out to other banks/lenders as well.
Will continue to keep everyone updated on everything.
Good luck!