What Can Be Used as an Alternative to "Skin in the Game"?
May 05, 2021
by a searcher
in Birmingham, UK
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11Replies
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by a searcher
from Harvard University
in Colorado Springs, CO, USA
This makes sense because the bank is seeking to minimize its risk of loss and there's nothing that sinks a small business faster than the owner/CEO walking away. The more you put in personally, the more likely (in their opinion) you are to push through the tough times rather than walk away from your personal investment. Given this, you have two options that can be combined to match your personal and the bank's comfort level.
The first would be to increase the equity injection from your investors. Having a higher amount of equity (from any source) makes the deal safer to the bank. Increasing the investor equity injection means that even if you were to walk away, the investors are more likely to hire someone to run the company rather than walk away too.
The second would be to find an amount of "skin in the game" that is significant to you such that the bank feels comfortable. If, for example, you were to put 100% of your net worth (for example by giving the bank a lien on your real estate and vehicles in combination with some cash, even if it came from family as a gift), you might convince the bank that you're fully committed.
You are likely to find some combination of these that will satisfy the bank. The problem is that, as a broke searcher (as most of us are), the deals that are a fit for 1. the bank 2. the searcher and 3. the investors are very, very scarce, even within the subset of "good deals" that would work for the buyer and the seller.
Another tactic you can use is to go very, very small. I don't know what sort of income you are looking for immediately, but I know someone who started with a $35k business 8 years ago and is now on 8-figure businesses. If you can keep the total SBA loan below the "express" limit, you can get it done quickly.
I'm always up for a chat to help a fellow searcher, so if you'd like to talk, DM me and I'll get you on my calendar.
Best of luck!
Reply
by a searcher
from Harvard University
in Colorado Springs, CO, USA
I think this depends on which "skin in the game" you're talking about. Are you referring to the lender wanting you, the buyer to have "skin in the game" via personal equity injection or that you, the buyer, want the seller to have "skin in the game" in the form of seller note/earn out/retained equity?
from Harvard University in Colorado Springs, CO, USA
The first would be to increase the equity injection from your investors. Having a higher amount of equity (from any source) makes the deal safer to the bank. Increasing the investor equity injection means that even if you were to walk away, the investors are more likely to hire someone to run the company rather than walk away too.
The second would be to find an amount of "skin in the game" that is significant to you such that the bank feels comfortable. If, for example, you were to put 100% of your net worth (for example by giving the bank a lien on your real estate and vehicles in combination with some cash, even if it came from family as a gift), you might convince the bank that you're fully committed.
You are likely to find some combination of these that will satisfy the bank. The problem is that, as a broke searcher (as most of us are), the deals that are a fit for 1. the bank 2. the searcher and 3. the investors are very, very scarce, even within the subset of "good deals" that would work for the buyer and the seller.
Another tactic you can use is to go very, very small. I don't know what sort of income you are looking for immediately, but I know someone who started with a $35k business 8 years ago and is now on 8-figure businesses. If you can keep the total SBA loan below the "express" limit, you can get it done quickly.
I'm always up for a chat to help a fellow searcher, so if you'd like to talk, DM me and I'll get you on my calendar.
Best of luck!
from Harvard University in Colorado Springs, CO, USA