Let's say you're looking to acquire a business that involves an SBA or some type of loan. Chances are the interest rate is higher than you'd like. Are there ways around it?

One way is to first see if the owner has real estate available for sale as well. If so, contact a real estate broker for an opinion of value (BOV). This should not ever cost you anything - beware of brokers that try and charge for it.

While it won't always make sense, it doesn't hurt to see if a sale-leaseback could be a viable option. Perhaps the owner is undervaluing the real estate and there's enough arbitrage between that value and the value with a lease in place. It could help fund the acquisition or simply put the cash to a higher and better use. Real estate isn't generating income if your business is there, it can only go up through appreciation. Assuming the ROI on your business is higher than simple appreciation, it should at least be a consideration.

Again, it doesn't always fit. The reasoning is that most people sell the RE for the appraised value. An appraisal is valued one of 3 ways - replacement cost, sales comparables, or income approach. For businesses that own their RE, appraisers can only look at the first 2 as there is no income to value.

The magic of the sale-leaseback is converting the value to be based on the income approach. Now, the potential rental stream paid by the business is valued at a cap rate (similar to a business multiple). A 5%-6% Cap Rate equates to selling the real estate for a 16-20x multiple. Pretty interesting, right? Yes, you're now paying rent. But most businesses pay themselves rent anyways through an OpCo PropCo structure to lower their taxable income since rent is an expense on the P&L. Happy to chat with anyone.