Is it worth trying for SBA with a small deal?
September 14, 2022
by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA
I have a deal that's ready to sign an LOI, but it's smaller than a typical SBA range ($315k total value).
Initially, I offered an all cash and seller financing deal (1/3 up front, 1/3 at 6 months, and 1/3 financed over 3 years), but the seller wants more up front.
I've spoken to SBA lenders and most want $1mm+ deal sizes. So my question is, is it worth shopping around for SBA loans on a deal this small? Or should I just move on and focus on other things?
For context, I already have an existing business doing ~$2.5mm in annual revenue and plan to build up a portfolio of related businesses, but this is my first acquisition. I've also got a minority partner in Austria putting in money for this deal.
from University of Pennsylvania in Atlanta, GA, USA
Yes, for most SBA lenders, it's not worth the hassle for deals under a certain amount but many do go under $1 million. I almost bought a firm for $850K using an SBA loan but the seller didn't have 1 calendar year of financials. (a different conversation)
I've written some articles on the SBA and I remembered the SBA Express Loan Program. Here's a direct copy/paste from their loan fact sheet. "SBA Express Loan Program – SBA Express loans are backed by an SBA guarantee of 50 percent, the lender uses its own application and documentation forms and the lender has unilateral credit approval authority as in the PLP Program. This method makes it easier and faster for lenders to provide small business loans of $350,000 or less, with SBA generally providing a loan guarantee to the lender within 24 hours of their request."
PLP = preferred lender program.
So the main differences here are the guarantee is only for 50% of the deal (more exposure for the bank) and a really fast turnaround time.
I'd use a PLP or another lender that specializes in the SBA Express Loan Program.
Good luck!
Tiffany
from Vanderbilt University in Denver, CO, USA
In practice, as you're hearing, many SBA orgs don't want to work on such small value loans, so hopefully Terrence has some good connections for you.