Use SBA loan to fund a search?

September 01, 2023

by a searcher in Rindge, NH 03461, USA

Here's a question: Can someone use a 'small' SBA loan to (self) fund their search?
Create an LLC, apply for an SBA loan as a 'start up', borrow, $25-100,000, and use it to pay for (self) funded search?

Could that be done?
Then, when company is acquired, you roll this 'small' SBA loan into the bigger one to buy the company.
Great idea or stupid?

(People with good credit could use credit card stacking/advances at 0% to do this too I suppose)

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Reply by a lender
from Florida State University in St. Petersburg, FL, USA

Hey Sven - regarding the first aspect (SBA funding the search), I believe it would not be SBA eligible per guidelines. May be able to structure the search expenses as "equity injection" for the "bigger SBA loan" down the road pending on what those search expenses are.

I have experience with start-ups acquiring existing businesses/starting a franchisee location, which is SBA eligible. Good credit is key to qualifying for the process, as well as a competent business plan, direct experience (whether it be you or a management team), reasonable projections with sufficient cash flow to cover debts, etc.

Reach out to me at redacted if you want to touch base on some potential avenues.

Reply by a searcher
in Rindge, NH 03461, USA

Also, can a searcher use the funds they spent on the search process as down payment toward the purchase of the company? It would see appropriate to do this as the cost to acquire the business is a cost of the transaction. Thoughts from SBA experts?

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