Interest only loan for business acquisitions

by a searcher

3 years ago

Hello SearchFunders

I have a 20% deposit for a 1.5M EBITDA deal I'm negotiating in the construction sector and I'm wondering whether it will be possible to obtain an interest only loan or a loan where there amortization period is 10 years?

The deal falls apart if its fully amortized over 5 or 7 years. I am using a 7% interest rate to calculate the deal.

I'm wondering whether a 7-10% interest only loan (Non-SBA) would be possible to make this work? 

Thank you

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searcher from University of Illinois at Urbana-Champaign

Yeah, IF you can get debt-only financing, it's gonna be a high rate for no amortization. So, practically speaking, this ends up needing more/outside equity, to reduce the debt financing, so that it will pencil.

4 months ago | like reply | 0 likes

searcher from University of Notre Dame

For this sort of financing, you'll need to find a non-bank lender -- potentially an alternative credit firm, but I would also consider family offices / deep-pocketed individuals. A capital partner of this sort may give you low amort (1-5% annually) or even no-amort financing, but note that it will probably be expensive (low-to-mid teens cost of capital).

Unfortunately, this will be an uphill slog. Businesses in the construction industry are often poor credits: they are generally cyclical, project-based, and they sometimes have bonding requirements. Though the equity story can be attractive, the credit-story can be tough.

To be sure, it's hard to judge these things with limited info. Feel free to message me if you'd like to discuss further.

3 years ago | like reply | 0 likes

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