Funding With Limited Collateral
SITUATION: FAMILY WANTS TO BUY PROFITABLE BUSINESS
A husband, wife, and son team has over 30 years of combined experience in an industry and finds the perfect business to buy. The business has a 40-year history and a track record of adequate cash flow.
Unfortunately, the family doesn’t have sufficient funds to qualify for a conventional business loan. This created a collateral shortfall, as well as an equity contribution barrier.
SOLUTION: SPECIALTY FINANCE SBA LOAN
First Business Bank offers a complete toolbox of funding solutions to meet business owners’ unique needs. For this situation, an SBA loan was a perfect fit. Guaranteed by the U.S. Small Business Administration, SBA loans are an alternative to traditional bank loans, designed to help people starting up or growing a business who may not meet traditional lending standards.
No Collateral Obstacle
Many banks are hesitant to lend against intangible assets, such as a company’s client list. Because the U.S. Small Business Administration typically guarantees 75% of SBA loans, banks like First Business Bank are more comfortable extending SBA loans that aren’t fully secured by collateral.
Low Requirements on Equity Contribution
Conventional loans often require sellers to contribute greater than 30% equity when acquiring a business. This can be a problematic barrier for small business owners.
Extended Loan Amortization with No Balloon Payment
First Business Bank structured this family’s SBA loan so they repay it over 10 years and aren’t required to make a balloon payment — a larger-than-usual one-time payment at the end of the loan term. This gives them peace of mind they won’t have to refinance the loan earlier. The loan amortization is up to seven or eight years longer than a typical conventional loan, making it easier to pay back the loan.
"The total project, with working capital was $5.15 million, so we offered a $3.6 MILLION SBA LOAN. The buyers contributed 10% of their own money, and the seller provided financing for $1 million of the sales price — a loan between the buyer and seller that bridged the gap. This seller financing also ensured the seller will help position the new owners for success to ensure repayment.
— Marty Ferguson
, Managing Director of SBA Lending, First Business Bank