Question on building an Equity / SBA capital stack

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by a searcher from University of North Carolina at Charlotte
in Raleigh, NC, USA

2h ago

Question on building an Equity / SBA capital stack

Question for the community. Under the old SBA rules a deferred down payment was a pretty common strategy for buyers who didn't have the full equity injection sitting in cash. My understanding is the new SOP changed that significantly and limits seller notes to 50% of the equity injection. So I'm curious; are there equity investors who are stepping in to fill that gap? Basically providing the cash portion of the equity injection in exchange for a minority stake under 20%? If you're doing this or know anyone who is, what kinds of deals are best for this kind of structure. Thanks so much.

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reply by a lender 1h ago
from Cornell University in Los Angeles, CA, USA

Hi ^redacted‌ - nice to meet you. Good question. Just for added clarity, yes, under the current SOP a seller note can cover up to 50% of the equity injection, but that portion must be on full standby for the life of the loan. That means no principal or interest payments at all, though interest can accrue. On your second question, yes, this is happening. We have seen investors fully fund the down payment in exchange for a minority stake under 20%. The key is knowing which lenders are comfortable with that structure, since appetite varies a lot from bank to bank. We'd be happy to introduce you to these investors if you have a deal under LOI. We have a lot experience financing various companies via the SBA. If you ever need help reviewing a deal, I am happy to help. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can email me directly at redacted or schedule a meeting with me: redacted. Look forward to chatting!

reply by a searcher 2m ago
from University of Michigan in Raleigh, NC, USA

I believe that any equity partners also have to personally guarantee the SBA loan now...it used to be anyone under 20% equity didn't have to PG the loan but I believe they are getting more strict on this now. @redacted‌ can probably verify this though.