As a sell-side M&A advisor I run into challenges when buyers try to finance a deal between $5M to $10M. It's a tough spot because SBA lending limits cap out at $5m and most private equity and other capital providers don't like deals that are in this range. So finding a path to a deal that makes everyone happy is a real challenge.

As an example, let's say a company has $1.5M in EBITDA (and roughly the same in free cash flow), which includes compensating a manager so that the owner can be passive. For a standard industry, most sellers want 5X. You can argue all you want, but I'm telling you that's what most sellers want... And I think there are ways to get there... Here is how I view a deal structure that could work:

$5,000,000 SBA Loan (10-years, 11.5% APR, fully amortized)
$750,000 Buyer Equity
$1,750,000 Seller Financing

Most lenders want a 1.5X DSCR, which means the deal can handle $1M in annual debt payments and still conform to the lender's preferred DSCR. The SBA loan payments are around $845,000 per year. The issue is that the seller note under the same terms of the SBA loan busts through the DSCR. So buyers need the seller to be creative on the note - deferred, forgivable, lower interest rate, etc. The issue is that most sellers want a five-year fully guaranteed note at the most. And most want at least 5% interest.

As a sell-side advisor, I'm trying to find creative solutions that allows the seller to "get their number" but also provides an SBA conforming deal structure for the buyer.

I would love to get everyone's thoughts on how this could work!