SBA valuations vs owner valuations

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by a searcher from University of North Dakota
in Loveland, CO, USA

2yrs ago

SBA valuations vs owner valuations

We are looking at a deal with a gap between the owners valuation and how the bank values the deal.

A 4X multiple is putting the offer at a value of $6,000,000 but the owner wants $8,000,000.

The reason he feels it's now worth $8m is because 2 new large (brand name) clients have started using them to manufacture their goods. The production just started so they are expecting to do much more in revenue.

I was able to walk through the production facility and confirm these customers are now using them and I'm familiar with these brand names.

My question is, a bank is going to put a value on this company based on historical figures, not what it is expected to do. Since there are no contracts, I understand their position.

What are some creative ways to close the gap between what the seller wants and what the bank values the business? Especially since an SBA note won't allow for earn outs.

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reply by a searcher 1yr ago
from Princeton University in California, USA

I'd seriously consider going outside the SBA route to get more pro forma credit on EBITDA and meet him halfway to get to $7mm? At least worth a market check

reply by a searcher 1yr ago
from University of Texas at Austin in Fort Worth, TX, USA

My personal ranking of alternatives, assuming seller-financing can't bridge the full gap: 1) raise private preferred equity capital with right to buy them out at a predetermined rate of return, giving you the opportunity to become a sole owner one day 2) approach mezzanine lenders regarding a bridge loan seeking interest only payments for 2-3 years. Should be able to refinance SBA after 2 years - hopefully can do so below the SBA limits. 3) approach traditional banks and accept faster amort schedule and / or potentially less favorable terms 4) let the seller roll equity (as previously mentioned)