Brokers pushing for smaller deals
May 10, 2023
by a searcher from California Polytechnic State University - San Luis Obispo in Oakland, CA, USA
Hey all, I've been searching for about 1 month now and several brokers I've reached out to have consistently been pushing me to look at smaller deals (~500k in price with 150k-200k SDE).
Every time I bring up a deal at 3mm-5mm range with corresponding SDE, even with me being able to put in 10-20% equity, they tell me that SBA will likely shut it down due to my lack of industry experience and/or I don't have the collateral via equity of my home to be able to support the SBA loan.
I'm not sure if it's just these brokers are trying to make a quick sale on the smaller deals or if the space has changed enough where I need even more collateral to be able to finance a deal.
Any insight is appreciated.
from University of California, Davis in Reno, NV, USA
Example: For an construction/trade firm (think electricians, plumbers, underground construction or excavation) an SBA Lender is going to require someone in the acquiring company, (a QO or QE that cannot be the Seller), to have the appropriate contractor's license. In CA and NV, this isn't a matter of pencil whipping a test, (not saying that is the case elsewhere either, I can only speak for NV and CA); you have to show W2 income working in that trade for a certain number of hours in addition to taking the test(s). I have found that a lot of buyers don't know this and they are frequently disappointed to find out that there really isn't a clear path to getting a license.
Short of that instance, where there is a specific licensing requirement, (and if they are financially qualified), my position is to let the Buyer make his/her case to all parties, (bankers/investors/sellers), that their past experience, (in sales, ops, marketing or whatever) is sufficiently transferrable to add value to, and to run, the business.
If there are obvious shortcomings in the Buyer's CV, that is where they need to figure out if their is sufficient cashflow so they can afford to hire the talent they lack or if they need to move to another opportunity.
I had a background as a sales engineer in Industrial/Telecom/Technolgy sales when my wife and I acquired a hot and cold beverage distribution company with an SBA loan. I made the case that sales is sales and my wife would handle the operations piece, (I overmarried).
We built it and sold it five years later. If the broker had decided that no one without F&B experience should see the business, we wouldn't have had the chance at it.
Sorry for the book length response, but that is my $.02.
in Winnipeg, MB, Canada
There are many people lined up to buy good businesses. Besides PE there are family offices as well as seasoned business people that are buying businesses with cash. We have to compete against them and they are the "low hanging fruit" for the brokers.
After you get their attention(brokers or others), there needs to be a compelling reason for them to help you become the successful purchaser of their clients' business. If it's easier for them to show the professional, financial and reputational capacity of an established business owner or investor why would they spend the time and energy to promote you or me. In my opinion, by steering you to the smaller deals, they are simply saying that is where they feel comfortable selling you to their clients. That's the part you need to work on.
It's probably not one thing(like a letter of financing) but a package of YOU that you need to package, practice and then sell everyone.
I hope there is something in here you find helpful. Good luck!