debt with no equity

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October 09, 2019

by a searcher from University of Pennsylvania - The Wharton School in Miami, FL, USA

Hi Searchfunder Community - I am evaluating a proprietary deal with $2M EBITDA. Looking at a ~$6M purchase price.
Asset coverage: business has $3.5M of A/R+Inventory (all of it good) I am seeking lenders who would fund the entire deal without the requirement of significant equity investment where I and the existing CEO would end up with 90% of the business. Will roll fees.

Real opportunity to take the business to $4M EBITDA through either vertical acquisition or vertical organic expansion. Likely to require additional capital for both over first###-###-#### months.

Be great to hear from all the lenders or suggestions from others on lenders or structure.

Many thanks!

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commentor profile
Reply by a searcher
from University of California, Santa Barbara in Los Angeles, CA, USA
A few people have reached out to me with the same question and I felt it best to post here, although I will also try to reply to you individually.

If you are looking at a sub $2M EBITDA deal, there are not many options other than the SBA. Most non-SBA lenders at this time don't want to lend to companies smaller than $2M in EBITDA and in general don't want a loan smaller than $5M. You can find some non-SBA cash flow based lending options sub $2M but they will likely be more expensive and involve personal guarantees (unless you have heavy asset coverage).

Hope this helps clarify.
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Reply by a searcher
from Harvard University in Chicago, IL, USA
An SBA loan is going to provide you the most in terms of loan to value (debt as a percentage of your total transaction cost). They are willing to do 90% of total cost. On top of that you can possibly add a subordinated promissory note as long as the provider is willing to except "standby" terms, meaning that they cannot receive distribution (interest or amort) until the SBA loan is full repaid . You can try to go family office / HNW individual, but most people are going to require you to have some skin in the game. SBA is probably your best option, save for a hungry individual lender.
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