I haven’t actually started searching yet but have been seriously considering the path. I think the big positives are the increased control and lower multiples. There’s less competition when you start looking at business with say 500k in EBITDA which leads to the lower multiples. In addition, not having any investors allows you to run the business as you see fit. The obvious downside is that a smaller business is more likely to be dependent on the owner so you need to be sure that you’re comfortable with that.

I don't think you would be able to get an SBA loan for 90% of a company. Typically, SBA loan only account for ~30% of funding.

David, I'm taking the self-funded route. I believe it gives me better control over the parameters that matter to me personally (geography, industry). With smaller businesses the financials are definitely a bit tighter, depending on what compensation and return you're looking for, but still doable, I think. Also, doing a self-funded search doesn't exclude you from finding equity investors for the acquisition itself, which opens up the financial aperture vs. doing the entire deal with just your own funds and a loan.

The SBA will fund up to 90% plus costs (including the guarantee fee) which can usually get to about 92% of the overall purchase price. Issue is will the cash flow work at that point....I often get asked about the equity required on a deal. I think the answer is nuanced and really depends on the multiple you are paying. I have had deals where the buyer only put down 5% (seller taking the other 5% on full standby) that cash flow great. Conversely I have looked at deals with 30% cash down that didn't work. It is deal specific but the rule is the bank can lend up to 90% of the total project cost

Banks that do large volumes of SBA loans are a great source of information to walk you through what they are willing to fund. https://www.sba.gov/article/2020/mar[redacted]most-active-sba-7a-lenders. In this environment, some have even outlined EBITDA multiple limits they will fund (3.5x) in addition to debt service coverage ratios (at least[redacted]The SBA website has really good info on this as well. The 10% down is a recent thing as it used to be 20%. You should also start talking to lawyers and accountants to determine who you will work with now versus later.

An important note when considering financing is that while a lot of banks will say they can fund up to 90%, in reality they will fund roughly 2x-2.5x EBITDA. So if 2x EBITDA = 90% of your purchase price then you're good.

Just don't expect to bring an LOI at 7x and get 90% from the bank.

May want to register for this event tomorrow morning: https://www.searchfunder.com/event/view/243

I was able to find success by cold calling owners directly which is where I think independent searchers should spend their time. . 90% ltv SBA financing is technically possible, but it’s a long, slow, and painful process with many areas the deal could fall apart. Any good broker knows this and would steer their clients to a more qualified buyer who can put more cash into the deal which speeds up the process and increases the chance the seller (and brokers commission) gets paid.

The comments above are on point. I bought a business last fall through a broker (fees paid by the seller), and bought a business with EBITDA around $550k at less than 3x multiple. Brought 20% to the table and funded the rest with a SBA 7(a) loan. Wells Fargo did a great job on my loan. Everything was working and penciling great until COVID. Now I'm spending much more time than I planned on actual operations, but we will survive. I stopped running PE funded companies because I wanted 100% control. For better or worse, I got what I bargained for and when we get through the bulk of the pandemic I'll be glad I did it.

Eric, how do you get past the gatekeeper to talk to the owner? How do you get the owner to accept a realistic price?

I prefer this approach because I think it's the fastest way into the game with the least sacrifices.. I have a similar story as ^[redacted]‌, but had the fortune of 3 full years to operate, improve the business, pay down debt, and acquire and integrate add ons before COVID, My search took ~2 months of part time hunting, then 4 months to close, all of which was done part time with side consulting projects helping pay for it. The opportunities are much better once you own something and are operating. At that point you'll really prefer owning it so you have free reign to call the shots and move in the direction that best suits your preferences and strengths.

^[redacted]‌ It's certainly possible as others have pointed out. I searched part-time, found a business, and financed it through personal cash and SBA. ^[redacted]‌ was actually the broker on my deal and ^[redacted]‌ is our lending partner, both did a great job and were amazing to work with. Colin's comments about buyer equity are sound, it's nuanced, so expect to be flexible here and I'd recommend working within a range than a specific number.

Thank you for all the helpful insights! I am working through similar questions right now

Getting past the gatekeeper and setting a realistic price is how a broker earns her commission, in my experience ^[redacted]‌. When I was shopping for a deal last year, I put an LOI out the did not get accepted, but I liked the broker enough that I kept in touch, told him what I was looking for, and he called me back when the right deal crossed his desk. He had already set a fair price on the deal with the seller, and saved me a ton of time in educating the seller.

Agreed.

I surprisingly found that cold-calling owners of companies (that were not published for-sale) works very well. By calling owners of companies that interested me (in an industry that I'd like to enter), I started some really good conversations and learned about owners that were contemplating sales (but haven't pulled the trigger yet).

Over a small sample size, I found that 1 in every 5 owners I called were considering a sale over the next few years, and were willing to tell me all about their business to get me interested.

Hi David, I actually started the Acquisition Lab for exactly this purpose (https://www.AcquisitionLab.com). We have a ~25% acceptance rate from application to admitted (most everyone on this site would be accepted) and in just 8 months over 12% of our members have closed already. Feel free to check it out and apply if you have interest. I'd love to help. We've kept it super inexpensive as well.

Really interesting Walker! Currently reading your book. I'll check it out

Agree, great idea and nicely condensed into 8 weeks so only a moderate time investment before you get going on the search

When you consider the fact that a lot of these searches can take 2 years, I think Walker's approach acknowledges that there's an opportunity cost and cost-of-money associated with taking that long (or even longer!)

Hey David, I've done something like this. Happy to share.

Hey David, I'm planning on pursuing this path. Also enjoyed Buy then Build. From what I can see, seems that there is a much more favorable supply/demand dynamic as a buyer for deals that are too small for any PE or funded searchers to be interested, so can really meet a need for potential sellers. The other side of the coin however with SBA, however, is personal guarantee means you will have maximum skin in the game. Also smaller businesses and you being solo may come with less predictability (not always, but generally). Seems to me that it's prudent to acquire at a low multiple[redacted]and focus on building liquidity early on to protect yourself from unforseen fluctuations/shocks.

Hi David, I come from the F&B business and have done this a handful of times. It can be done and the returns are excellent along with the stress. Send me a direct message if you have any questions. My experience is with NY and CA based businesses with sub $1M rev and sde in the range of $200-$350k.

David - I have been doing this for 3 months. Happy to set up a call to chat if helpful.

I am new to the community and following this path; I'm converting significant real estate equity into my funding, with SBA loans. Would this group be open to a quick small-group call to discuss? I may be able to direct to some different resources that are available (for free) from the SBA, as I'm currently a mentor/advisor with SCORE.

Thanks for the post. I am also wanting to start a PPM. How to overcome the "what capital do you have access to" when speaking to a broker (in Switzerland?

I have acquired a company using self funded model, raised SBA debt and now exiting from the company. Please feel free to email me directly. Happy to be a general resource - [redacted]

You might not want to rule out an investor. Because if you are acquiring a small company, the amount of money you'll need to close the gap between the SBA funded portion and your personal savings/investment funds will be small in terms of dollar amount. At small dollar amounts, investors may not be as demanding or feel the need to be as involved. If you can find an investor to put up that small amount on reasonable terms, without requiring much control or management input, then it's much like the 90% SBA loan you describe, you're just sending out 2 loan payments per month instead of one. Added bonus, you might get the investor to let you defer the first year of payments or provide some other kind of flexibility that you couldn't get from a bank.

As a small-time laywer, I have worked with a lot of buyers that have taken this route, and probably few-to-none of them would consider themselves "Searchers" or would even be familiar with the Search Fund world and its terminology/SOPs. They are just people buying a business through some combination of Personal/SBA/Seller/F&F financing, and they are doing so for any number of different reasons. You'd be amazed what some smaller community banks will lend against!

The common knock is that this operation is akin to "buying a job" and the HBR guide would argue that businesses in your price range are not likely to be "enduringly profitable." While I think those are valid concerns, as long as you are clear about your personal and financial objectives, the smaller, self-funded acquisition route might be just what you're looking for. Just do your due diligence! Good luck!

Hi David, I am based in Switzerland and going through my own acquisition path. Let me know if this would be of interest. PM and we can set a call

Glad to see that this post received quite a bit of attention. Well deserved!