% of equity required for conventional loans

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September 19, 2022

by a searcher from Harvard University - Harvard Business School in Alexandria, VA, USA

I'm about to submit an LOI for a company that's too large for SBA financing. How much equity do conventional lenders typically require as a % of the transaction price? I can get the company at 5x EBITDA and the revenue is all contractual with the government and very steady month to month for the last 3 years. I'm confident I can get seller financing for 1/3 of the transaction, but am trying to gauge what debt:EBITDA conventional lenders are providing and how much they are requiring for equity as a percent of the deal.

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Reply by a lender
from Carnegie Mellon University in Pittsburgh, PA, USA
as with all things, it depends. credit markets are tightening right now, but some of the really aggressive lenders might give you up to 4x, which would be 80% debt/20% equity for your 5x purchase price deal. my advice would be to not over-lever anything right now, no matter how bulletproof you think the revenue is.
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Reply by an intermediary
from Ryerson University in Toronto, ON, Canada
In Canada, the tier 2 lenders can do 10-15% with at least 30-40% in combined equity + deferred seller financing. The bigger banks typically want to see 20%+. The lower the equity cheque in lower mid-market, the more likely a PG for the borrower regardless of how good the deal is. Banks want skin in the game.
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