Valuations & Deal Structure

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by a searcher from East Carolina University - College of Business
in Raleigh, NC, USA

3yrs ago

Valuations & Deal Structure

Quite new to the smba space, but I am currently in tech doing business analysis consulting and project management.

I have a general understanding of using SBA loans to acquire businesses, but I would love to get more detail on how they’re structured based on business valuations.

Any people and/or resources that can help me get a lower level view on this?

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reply by a professional 3yrs ago
from The University of Texas at Austin in Austin, TX, USA

Hi redacted‌ - I know an SBA expert lender that can help. The smallest loan amount he can do is $500,000 and can support these states: OH, KY, TN, PA, IN, MI, TX, and FL. Send me a DM if you want his contact info.

reply by a searcher 3yrs ago
from California State Polytechnic University in Pomona, CA, USA

There is a lot that goes into it, but quick and rough math looks like this:

EBITDA/SDE x Valuation Multiple x 0.9 = Total Possible 7A SBA Loan Amount ($5.0M Max)
EBITDA/SDE x Valuation Multiple x 0.1 = Equity Required (from buyer, seller note, investors)
EBITDA/SDE x Valuation Multiple x 0.05 = Max Equity from Seller Note applical to minimum total equity

EBITDA/SDE / 12 mos loan payments = DSCR, of which, with current interest rates you probably need to target a Valuation Multiple under 4.5x to hit the proper DSCR that most bank have set (can be 1.25 to 1.50 depending on bank).

The Live Oak Bank office hours are a great resource for learing all about this in detail and receiving some valuable modeling tools for more in depth accounting of this!