Does anyone have any experience or knowledge of searchers who have self funded the equity for their deal. For example, would it be possible to find a company for $1 mm, fund the deal with 90% SBA Loan / 10% Equity with the 100k in equity coming out of savings? I can see a couple of potential issues:
Getting SBA approval, would this be difficult without deep pockets / or deep industry experience?
Business lack the size / scope to have a management team in place. I assume that would make things more challenging in the beginning. It seems like you could offset that by getting the seller to stay on and provide training after the sale. I assume there would be additional upside / the business would be more attractive in a future sale if you were able to grow it to the size where you could bring in some type of management team?
I assume there would also be some issues where you're basically buying a job for yourself.
The obvious upside here is that you would be able to retain control and after paying down the debt would have a significant equity position.
Am I missing something here? Why isn't this talked about more as potential path?
Self Funding acquisition
by a searcher from Williams College
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From day one talk about 15% seller finance or whatever your preference is. If the seller is not willing move on. This will allow you to have a lower bank note even if the seller note will end up in a balloon payment down the road.
I would also consider 1.5 DSCR as a minimum (including the extra payments required to have paid down entirely your seller note before the term and your salary). Again trying to weed out all the owners asking for the stars and the moon.
Good luck in your search and if you want to connect I’d be happy to!