How to finance the acquisition of a recently started company?

by a searcher from Carnegie Mellon University - Tepper School of Business

3 years ago

I am interested in acquiring a company that was started in 2019 and in 2020 earned $1M revenue at 50% net margins and they operate within a rapidly growing segment. However, the SBA lender with whom I usually work (Live Oak) has no interest in offering debt for this deal as the company is too young--they would like to see 2018 revenue that would cover the debt service--and my experience is that other SBA lenders have similar preferences. But maybe I'm wrong.

Has anyone made a successful acquisition of a young company that involved raising debt financing? I'd appreciate hearing your suggestions on what lenders are willing to lend against young company revenue. 

Thanks!

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lender from Western Carolina University

One year of cash flow with minimal collateral is not a problem for us. I have financed many in the past, and currently working on 2 right now involving companies started in 2018/2019. It really comes down to how aggressive a lender wants to be and how strong the entire deal is. It is also understandable why a lender would want 3+ years of operating history for credit risks.

3 years ago | like reply | 1 like

searcher from Harvard University - Harvard Business School

I was in that boat. I created a 1-pager that I could share with any banker I could get in touch with. I had to contact >150 institutions, but I came up with several willing to do the deal within the SBA, so just keep trying and you'll probably find one. Good luck!

3 years ago | like reply | 1 like

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