SBA loan on Cash + Equity deal

searcher profile

June 18, 2021

by a searcher from Harvard University in Boston, MA, USA

We run a small for now CPG conglomerate. We have the opportunity to acquire a brand for 1/3 cash + 2/3 parent company stock. The EBITDA of the target would support an SBA loan of ~1/2 of the acquisition price at 5x adjusted EBITDA (so working capital to spare).

Can we use an SBA loan to finance the cash portion of the acquisition in these circumstances?

EBITDA has been fairly consistent for 18, 19, 20. Is that a long enough record to get a non-SBA bank loan?
Thanks,
Ted

2
7
159
Replies
7
commentor profile
Reply by a searcher
in Boston, MA, USA
From my experience, it sounds like it would be a very tough deal to get SBA lending. Are you saying the acquisition is at a 10x? (1/2 the acquisition price at 5x?...little confused what you're saying here) If so, getting a valuation to come in at 10x on an SBA loan is also very rare. I've advised on dozens of SBA loans and never seen it.

If you do go SBA route, you're going to need a quality and competent banker, so definitely get a referral.... SBA lending can be like the wild west
commentor profile
Reply by a searcher
from The University of Michigan in San Carlos, CA, USA
I recently came across a deal that had similar terms and used an SBA loan for the cash portion. Is your concern in this case the funding ratio or just the utilization of multiple sources in general? Either way, I think this is possible, but the best bet is to get involved with an SBA lender (or perhaps multiple) from the get go to see what kinds of terms you'd be looking at for a mixed deal like this.
commentor profile
+5 more replies.
Join the discussion