Leveraging Search Funds with Strategic Partnerships and Innovative Financin
August 24, 2024
by a searcher from Loyola College in Maryland in Baltimore, MD, USA
As a searcher focused on acquiring and scaling businesses with strong potential, I've been exploring various strategies to maximize the efficiency and success of the search fund model. I'm particularly interested in how partnerships within a search fund structure can be optimized, especially when considering SBA financing and other creative financing options.
In my experience and research, one challenge that often arises is balancing equity ownership and control when bringing in a partner, particularly in cases where SBA financing is involved. Given that SBA loans typically apply to owners with a 20% or more stake, it's crucial to structure the partnership in a way that maximizes flexibility and funding potential without compromising the overall strategic vision.
I've been considering a scenario where a two-searcher partnership is leveraged to rotate ownership percentages for each deal, thereby maintaining eligibility for SBA funding across multiple acquisitions.
I'd love to hear thoughts from the community on this approach and any experiences or insights you might have on managing partnerships and financing strategies in search funds. What are the pros and cons you've encountered, and how do you navigate the complexities of partnership dynamics while keeping the financial strategy sound?
Looking forward to your feedback!
Stelios Anastasiades Searcher, S&S Acquisitions Corporation
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Just as a quick reference, any individual guarantor (over 20% ownership interest in an SBA funded business) has up to a $5 million SBA guarantee limit. If you are an owner with under a 20% ownership interest, that loan to the company does not impact your guarantee limit. If you were to buy another company in the future and switch the ownership (you now own over 20% and the partner under 20%) then you would be using your $5 million limit for that acquisition. This is commonly done in the SBA funding world. You can in theory be a minority investor in an unlimited number of businesses utilizing SBA financing so long as your ownership in most is below 20% and you do not have an ownership at or above 20% for more than $5 million in exposure.
in London, UK