Inquiry on SBA loan repayment rules on a subsequent acquisition

by a searcher from University of Pennsylvania - The Wharton School

4 months ago

All,

I am involved with a situation of a small company acquiring a bigger company.  I am prospectively providing equity to support the overall transaction.  The small company has an existing SBA Loan at present, however the combined transaction will involve a new lender providing the acquisition capital for the purchase of the bigger company and some refinancing of existing debt at the small company.

Does the SBA require that their existing loan be extinguished in this scenario?  Or is there a scenario where the SBA loan would exist with the small company post new acquisition and refinancing?

Any insights here would be appreciated; and thanks in advance.

Regards,

David

1 like
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8 comments

lender from California State University, Sacramento - College of Business Administration

Due to the lien position issues, sounds like a refi of existing debt by the second lender will be potentially required + that bank doing the acquisition debt. I don’t know any sba lenders that would go into second position. Sba does also have rules on refi of existing debt where you'll
need to show a 10% improvement in cashflow. Happy to talk in more detail to make sure we’re getting all the points. There are also issues of debt service for existing and acquisition company that will need to be considered.

4 months ago | like reply | 0 likes

lender from Eastern Illinois University

^Searchfunder member‌ Thank you for looping me in. I agree with what has already been said. The existing debt can stay in place so long as the existing company is doing the acquisition. However, the change in ownership does play into things a bit. This is somewhat of a complex question. I would be happy to jump on a call to talk through it and be sure I understand all of the nuances of what you are looking to do so I can provide the most accurate advice. You can reach me here or directly at --@----.com ‌‌

4 months ago | like reply | 0 likes

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