Equity Structures beyond the $5MM SBA cap?

searcher profile

August 25, 2021

by a searcher from Brigham Young University in Kahului, HI, USA

Working on a couple of opportunities that will get us close to the $5MM SBA lending limit and curious about structures that include more equity/commercial debt. Previous deals have been 10% equity, 10% seller debt, 80% SBA debt.

We are primarily targeting smaller deals ($500k-2MM EBITDA) with multiples in the 2.5 to 3x range. (We had one PE firm say they would write a check for the entirety of one deal and let us run it, but am leery of giving up control and not taking advantage of some element of leveraged bank debt.)

Structures, equity terms, etc would be appreciated. I know this primarily comes down to what you can sell investors on, collateral when it comes to bank terms, etc., but curious about other recent experiences.

Thanks in advance.

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Hello Curt. We are a Commercial Loan Brokerage shop and have done some structures that exceed the $5 million SBA mark. Of course you could do those SBA keeping the SBA loan at $5 million and do a combination of seller carry, equity, secondary debt (such as mezzanine debt) or work with one of the lenders we have that will do a second conventional loan above the SBA 504 limits. The biggest issues with not going SBA or a combination SBA and conventional with a conventional lender, is typically for an investment banking division to do the deal they would require 30% to 40% equity / seller carry, and would structure the entire transaction with a much shorter term. I would be more than happy to discuss options at any time at redacted Thank you.
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Reply by a lender
from Northwestern University in Chicago, IL, USA
Hi Curt, hopefully you've been well. I can do hybrid loans (SBA + Conventional), so the $5MM limit is a non-issue. Huge positive that you have a PE firm so eager to back you. Maybe you can let the PE firm come in as a minority investor, be a mezzanine lender, or a combination of the two. The capital stack would look something like this: 10% equity, 10% seller debt, 15% PE, and 65% bank financing. You maintain control and your company isn't over-leveraged, win-win.

Good luck with the opportunities you're working on! My direct contact info is redacted or###-###-#### .
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