Elephant in the room question - How to address the 10% equity for SBA deal?

searcher profile

November 07, 2021

by a searcher from University of North Texas in San Antonio, TX, USA

Help from the group: (please no anecdotal answers, but real-life)

I continue to get from banks that the SBA requires a 10% cash injection from buyer, but have never read it under the SBA guidelines.
(Maybe this is just bank guidelines?)

Question- if you have all your ducks in a row and deal fits banks guidelines, but you personally don't have that '10%' cash available, how can you structure the deal?

Understand 'skin in the game' and one will by signing the dotted line, but if it's a good deal and is de-leveraged with great DSCR, how do you get over this hurdle?

*Again, real-life answers of those who have done it.

Thanks in advance!

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commentor profile
Reply by a lender
in Yorba Linda, CA, USA
The 10% does not have to come from you. Up to 100% of it can be raised from investors per SBA guidelines. If a bank is telling you they want it to come from your personal funds, this is a sign they don't understand or embrace the search model. Some banks perceive that having the 10% coming from the searcher reduces risk. However, from my perspective (lots of experience lending to searchers with most of their equity coming from professional, experienced, serial search investors) the risk is actually lower with the right investors. This is because of the experience and support these types of investors add to the deal making and operating phases (experienced oversight from parties with capital at risk is definitely better than none).
commentor profile
Reply by a searcher
from University of Virginia in Richmond, VA, USA
You have to figure out a way to get that capital. You can raise outside capital for the deal. You can save and invest yourself. You can form a rollover for business startup to use your retirement funds in a 401k.

If you want you can also finance it without any of your own capital if you can get a sufficiently large seller’s note and then take out a loan on the equipment like Gordon Bizar did.
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