Sourcing debt for your deal shouldn't have to feel soooo overwhelming and flat-out confusing. Below, I've tried my best to explain your options and demystify the process just a smidge. (I've also underlined what most folk get completely wrong).

[Note: When you see the words "generally," "typically," "sometimes" and "often" --- that means these terms can vary wildly deal-by-deal. It all depends.]

When it comes to a traditional loan, you've basically got two options:

#1. SBA 7(a) Loan (pro-tip: very often the actual SBA lender/bank will have stricter requirements than the formal SBA Guidelines published online)

- Good for small, asset-light deals (e.g. collateral shortfalls are okay; think service-based businesses).
- Good for buyers with limited (or zero) industry experience.
- Generally lower interest rate, but still floating rate most of the time.
- Can sometimes work in cases where the target business is distressed, or has experienced recent cash flow problems.
- Repayment terms of up to 10 years for working capital and up to 25 years for fixed assets.
- Up to 90% LTV, and can sometimes get away with only 5% cash at close, assuming the seller will do a fully standby seller note (far more rare than lenders will ever admit)
- Generally less (sometimes zero) financial covenants. Make your payments on time and you're golden.

- Maxes out at $5MM (a good rule of thumb is businesses generating < $1.5MM in EBITDA)
- Requires an Unlimited Personal Guarantee from individuals who own more than 20% of the deal.
- Longer close process###-###-#### days in most cases).
- This loan may prevent you from partnering with High Net Worth investors who own more than 20% of the deal.
- Generally higher Upfront Fees.

#2. Traditional Commercial & Industrial Loan (pro-tip: pricing and terms differs wildly bank-by-bank -- always shop around!)

- No limit on loan amount
- Can negotiate Limited Personal Guarantee, burn-offs and sometimes no Personal Guarantee (usually only if the business does > $5MM EBIDTA).
- Similar LTV options as the SBA 7(a).
- Generally easier to negotiate an initial Interest-Only period (case-by-case).
- Often easier to 'fix' the interest rate.
- No net worth limitations for investors/owners (huge if you're cash-strapped and were forced to raise money from wealthy friends and family)
- Lower Upfront Fees and faster time to close.

- Typically need 3 years of decent operating history (if distressed, look to an ABL lender).
- Much tougher to finance small, asset-light businesses (this is where the PG will need to be strong)
- Generally shorter maturity and amortization period.
- Almost certainly will require quarterly compliance testing of a max leverage covenant and a Debt Service Coverage Ratio (DSCR) covenant.