Searchers are inundated with SBA lenders looking to finance their prospective acquisition. And there is no doubt that by and large, the SBA is the best and most promising option to get your deal done. However, there are instances where an alternative lender or conventional debt provider may be your best option. Here are a few factors to consider when choosing the best type of lender for your deal.

  • Time – SBA loans are federally guaranteed and, therefore, processed by the federal government. Political leanings aside, many processes that are managed by the federal government take an extended period of time, and the SBA is no different. SBA loans typically involve more paperwork and administrative hand-holding which can severely lengthen the approval process. An SBA loan will take at a minimum 45 days from start to finish. Conversely, most alternative lenders can underwrite and close a loan within in a week, some within 48 hours.

  • Industry Mismatch – Say after your research, you have identified an opportunity with companies that create and sell gambling video terminals. Or a jewelry store with steady cash flows that receives a substantial amount of its revenue from pawn/commercial lending. Don’t bother looking to the SBA for financing on these types of opportunities as they will not provide funding for businesses in certain industries. Not only are there alternative lenders that are willing to provide capital to SBA-restricted industries, but some alternative lenders specialize in lending to those industries.

  • Expertise – Continuing that last point, since most alternative lenders are experts in the industries they loan to, they can be much more hands on and operate akin to an experienced equity investor. Once the capital is deployed, the expectation is that the lender is a strategic partner and can be used as an industry resource.

  • Heavy International Component – The SBA will not be a viable option if the business you are looking to acquire has a significant international component. There are hundreds of private lenders that allow for companies in their portfolio to receive a large percentage of revenue from international markets.

  • Non-recourse need – Some private lenders are comfortable providing non-recourse capital. The SBA always requires a personal guarantor.

  • Rates may not as expensive as you may think – Nearly all alternative debt is more expensive than SBA financing but the difference is not always extreme. Although most alternative lenders hover around the 10-15% range, a strong creditworthy borrower can pay 6-7% depending on the private debt fund’s investment objectives and targeted rate of return.

Evaluate your needs as well as the specifics of the business you are looking to acquire, and use that information to determine what type of lender is best for getting the deal done. Once your search is complete and you and the current owner are on the same page, finding financing and closing the deal can be tough terrain. Working with an experienced banker or CFO advisor is always a good idea, and may give you the edge you need to succeed. They can help you identify the right lending partner to get your deal closed, at more attractive rates and flexible structures than you may think!

​Bob Doyle 

Managing Partner

Gold Leaf Capital Partners