Negotiate 10% Seller note to 5% note and 5% downpayment assistance

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October 28, 2022

by a searcher from Regis University in Denver, CO, USA

I'm looking at a communications company going for $5 million. While there are a lot of things to still consider, the 1st obstacle I'm thinking about is the enormous purchase price.

The seller is ok with a 10% seller note, so I am wondering about offering terms of a 5% note and requesting a loan for the other 5% to match the SBA downpayment requirements from the buyer. Other factors: I own a software company that grosses about 200k that I would possibly be willing to leverage.

Would appreciate feedback on possible courses of action, the deal size is intimidating when self-funded.

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Reply by a searcher
from University of Southern California in 1 World Way, Los Angeles, CA 90045, USA
Kyle - terms on the seller notes are key here. To achieve this scenario, you would have one seller not at lets say 5 year term fully amortized. The other note would be on full standby for the life of the loan (10 years). Some banks will allow this type of setup but others require that you (or you + investors) bring the 10% down to the table. If you havent, suggest you reach out to ^redacted‌ or ^redacted‌ at live oak. They run a great series on the dos and don'ts of bank financing.
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Reply by a searcher
from Rochester Institute of Technology in Atlanta, GA, USA
Are you willing to put in any of your own cash? Have you already spoken with an SBA lender? I ask because there are restrictions that may determine and give you some guidelines on structuring this. I'm not so sure that you can borrow the downpayment from the Seller as their note already is in full standby already with an SBA loan.

If this business is outside of your financial bandwidth, have you considered finding equity partners?
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