Wheel Repair & SBA Loan Structure

June 14, 2021

by a searcher from Ohio State University in United States

Open to suggestions/input/references for more research:

1) trying to secure SBA loan with 5% buyer financed down. If the seller is financing the remaining 5% of the purchase price, does the seller 5% loan to me have to be on full standby until year 10?
2) let's say scenario 1 has seller earn out as well. I'm sure there is a way to do it (based off previous searches/posts), but trying to summarize to ensure understanding: I can either do contingent seller note or escrow? Anyone have any resources/contacts in this area?
3) what are the provisions from SBA if I secure loan approval prior to Sept 30? my understanding is that it's to the tune of no guaranty fee, $9k per month for 3 months after acquisition? Are there other components? Is it contingent upon loan approval or loan funding by Sept 30?
4) experience in wheel repair (repair removal, restoration, powder coating, color modifications). What are the challenges to growth? Is it a skilled labor intensive or capital intensive area? other watch outs economically that I should be aware of?

Reply by a lender
in Yorba Linda, CA, USA

Kinza, here are my answers to your questions: 1) yes, the seller note must be on full standby until the SBA loan is paid in full whenever the buyer puts in less than a 10% equity injection, 2) forgivable / contingent seller note or escrow hold back are ok with SBA IF they are tied to a historic performance metric, and not net new growth of the business 3) no guaranty fee and up to $9k per month of the P&I payments are the 2 subsidies you can expect, there are no others, must close by September 30th, although word is the SBA Administrator would like to extend some incentives beyond that date, so stayed tuned, 4) I don't have answers for this one without knowing more about this business

Reply by a lender
from University of Wisconsin in Milwaukee, WI, USA

In regards to #1, in my experience, it's not a given that even though you can do a deal with 5% down, that it's a structure we would approve. Most of the time I have used a 5%/5% structure, it's when you have a person who is in the business (such as a GM or key employee) who is buying it so you don't have the transition risk. I would go in with the expectation that you'll need more than just that one seller note if you're putting 5% cash down.

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