How will you structure a Gap Equity?

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by an investor from Massachusetts Institute of Technology - MIT Sloan School of Management
in Boston, MA, USA

3yrs ago

How will you structure a Gap Equity?

Let's say you buy a 10m company and took a 5m SBA personal guarantee loan, and asked investors to put in 5m to cover the shortfall.

How much % equity should the investors get? What do you think?

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reply by a lender 3yrs ago
from California State University, Sacramento in Seattle, WA, USA

Live Oak Searchfund lending did a panel on EQUITY structures in SBA loans. DM and I'll send you links. ^redacted‌ ^redacted‌ ^SMB LAW GROUP ^redacted‌ ^redacted‌ were panelists/moderators.

reply by an investor 3yrs ago
from University of California, Berkeley in San Francisco Bay Area, CA, USA

The issue with raising larger equity checks is that the universe of self-funded search investors who are ok with 20-30% equity is small and the available pool of capital is very limited. Generally speaking, self-funded search works best if the equity check is small. Your best bet is likely to go with an SBA lender who does companion loans. You may be able to get up to $10M of debt, but this will likely only work with a low multiple deal that has very consistent profitability over the past 3 years. Your other option would be partnering with an SBIC fund who provides both debt and equity (typically requires $2M+ EBITDA).