SBA lending, experience needed?

May 04, 2023

by a searcher from California Polytechnic State University - San Luis Obispo in Oakland, CA, USA

Hey all, how is everyone else getting around the experience needed in the industry requirement for SBA lending?
My partner and I spoke with a lender that mentioned they'll basically reject all deals without industry experience. Or part of the deal has to have a "key employee" as part of the transaction, i.e. give the "key employee" 1% of the company.

What are the best practices around this in deal structuring? Thanks

3 Likes

9 Replies

206 Views

Replies

Reply by a lender
from University of Missouri in St. Louis, MO, USA

Will, this is a bank to bank discussion but also can be industry or deal specific. The key question to ask yourself is "do you think you should have the experience in this particular field?" Your current bank saying a 1% equity stake for a key employee seems like CYA on their part as it would have no real world function in the success of the business. How motivated would a person be to stay somewhere over 1% ownership? That is them attempting to justify the deal in the event of default. Back to my earlier point, the question a bank should be asking is "what function does the current owner perform and do you have the requisite skills to perform that function?" A management business (pool cleaning, landscape, ect) likely doesn't require experience to run since you are performing more high level functions like logistics, customer management, etc. Am architectural firm where the current owner is heavily involved in drawings/planning would require someone with a relevant background to function properly.

Reply by a lender
from Xavier University in Cincinnati, OH, USA

It does seem that in the past few years this has become a majorly monitored focus area with SBA lenders. In my opinion it started with a large amount of acquisition deals being done with what ended up being either completely absentee owner structures or no company/management experience in the fields. In my experience, if there is explainable, transferrable experience to the new venture, and/or if there are key employees that will be staying on board during the transition time, many times these concerns can be mitigated. I'm happy to connect to learn more about the opportunity and if we can assist. Feel free to call me at###-###-#### or email me at redacted - Thank you!

+7 more replies.

Join the discussion