SBA loan on Cash + Equity deal

by a searcher from Harvard University

2 years ago

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 likes
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7 comments

intermediary from The University of Chicago - Booth School of Business

Interesting structure. I am surprised no input from SBA lenders. I se two problem areas a) 10x will be a problem with SBA (they don't work on collateral), and b) Seller involvement in BuyerCo post-transaction.

2 years ago | like reply | 0 likes

searcher from Bryant University

The bank would look at the total transaction. You’d be looking to finance 30% of the business at a 10x multiple. I would expect this to be a very hard sell for the SBA route. You may have luck if there is enough equipment to secure a loan for the 30%, but the structure is still a tough one to get by with SBA financing it sounds like.

2 years ago | like reply | 0 likes

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