SBA - Banks accepting 10% seller note for equity

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October 04, 2024

by a searcher from Harvard University - Harvard Business School in Washington, DC, USA

Names of banks that are accepting a seller note on 2 year standby for the entire equity requirement (without key-man involvement)?

Most still want 5% from the borrower. Has any bank embraced the SBA change last November?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
As a Commercial Loan Brokerage Shop with over 80 SBA lending partners, we have lots of experience with SBA financing. Even though the SBA will technically allow you to purchase a business with $0 down if you have a seller note for 10% of the purchase price on full standby (meaning no payments) for at least two years, very few lenders are actually doing $0 down. Most lenders loan policies require something down, and we have had success doing deals with 2.5% to 5.00% down. However, there are some circumstances if a deal is strong enough that we have had lenders consider $0 down. Typically the debt service coverage ratio needs to be very strong, there needs to be industry specific or strong relatable industry experience, and the business has to be clean without a lot of other risks. If you want to discuss a specific opportunity and see what is available, I would be happy to do so at any time. You can reach me here or directly at redacted
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Reply by a searcher
in Rindge, NH 03461, USA
My 2 cents on using higher % of debt/leverage. The issue has to do with DSCR, not the % of debt. What matters is your ability to make the payments, NOT the % of leverage. For example, a deal at $2MM is safer at 100% leverage, then a same company at $3MM with 20% down payment. The KEY is the DSCR, not % of leverage. I like to see 1.5 DSCR. If you can achieve a 'comfortable' DSCR of 1.5 then I think the next 'safest' thing is to retain as much cash in the bank as possible. It is not smart to empty the bank account in an effort to buy down your debt and leave yourself broke. Obviously not everyone agrees with me, but that is my 2 cents. Keep your rainy day cash, and focus on DSCR being at 1.5 or higher.
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