SBA - Banks accepting 10% seller note for equity

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

1yr ago

SBA - Banks accepting 10% seller note for equity

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 1yr ago
from University of Missouri in Denver, CO, USA

I agree with Lisa and Brad. I haven't gotten this structure approved yet at my Bank but I think for the right deal it could work. It must be perfect on all other metrics to consider this.

I also agree with Lisa's point that it seems at least mildly irresponsible. The seller financing is still debt even if on standby for two years.

reply by a searcher 1yr ago
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.