The Situation: Financing To Transition Ownership To Two Managers
An owner of a specialty kitchen products design and manufacturing company wanted to keep his business “in the family” by selling his company to two managers with whom he had developed close relationships. The business’s cashflow was strong and the managers had experience in the business and with its employees. They had gone to several banks and were referred to First Business Bank with these primary hurdles:
- Limited Personal Resources
The managers had not planned on buying a business. They had not put aside money for that purpose, had limited collateral, and no substantial collateral to leverage. - Lack of Prior Ownership
The managers had worked for this company for several years but had never owned a business before. - Critical Timing
The other employees knew change was coming and were questioning if the funding was going to happen, leading to potential instability in the business. The owner and potential owners wanted the funding to go through quickly to reassure the employees their jobs would be safe.
Solution: Quick Funding With An SBA 7(a) Loan From First Business Bank
First Business Bank, leveraging its SBA Preferred Lending status, provided a structured $1.25 million SBA 7(a) loan package along with seller financing.
- Deal Structure
The deal had to be structured in a way that worked for the buyer, seller, and the SBA. The seller had to take a note — a loan between the seller and buyer. The seller will not get the full purchase price on day one; he will receive payments over 10 years. This is not guaranteed, and, subsequently, a risk they all agreed to. - Fulfilled Wish
Through this SBA 7(a) loan, the owner was able to fulfill his wish of keeping the business “in the family,” selling to his managers and keeping the business in the hands of local members of the community. - Experience
There was substantial goodwill with this deal. SBA defines goodwill as value in a company that isn’t measurable by its physical assets.
