Deal Priced above SBA Funding Limit

searcher profile

January 17, 2024

by a searcher from University of Southern California in Franktown, CO 80116, USA

Is it common for deals to be priced above what the SBA is willing to fund? I ran across a deal in which the seller was requiring a significant cash down payment because the SBA was only willing to fund to an amount well below the deal price. They have turned away a couple offers already. The broker assured me an extensive valuation and QOE was completed and would be shared. I walked away not having that amount of cash, but just curious if this is common.

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commentor profile
Reply by a professional
in Boca Raton, FL, USA
Of course it's common, but that doesn't mean the seller is correct. they rarely are. After 34 + years buying and selling companies, one of the things I've learned is what a seller thinks their business is worth, rarely has any relationship to the value.

SBA lenders fund deals conservatively. Depending on the lender, I have found that overall, most are damn good at coming up with a fact-based valuation with thoughtful underwriting.

Some questions:

How do you know they have turned away offers, for what price and terms, and who exactly is providing this information to you? And, most importantly, it doesn't matter.

When will they be sharing the Q of E and valuation?

As far as the broker comments regarding an extensive valuation, who did it? The Q of E may be part of the data you need to compile your valuation; but it is not a valuation and that is something incumbent upon you, the buyer to compile.

My final answer: You're being subjected to a whole lot of "broker talk".
commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I would be happy to have a discussion from a lending perspective. There are creative ways to get the financing to work on a higher purchase price, but as mentioned above you need to be sure that price is still supported by cash flow and the business valuation. Just because you can structure a deal and make the numbers work does not mean that structure is ultimately in your best interest or you still are not over-paying for the business. But we have put some very creative structures together in the past. Please let me know if you want to walk through options. You can reach me here or directly at redacted Good luck.
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