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If you're an aspiring entrepreneur with your eye on a substantial business acquisition, you probably know that securing the right financing is crucial. In a recent video conversation with Beau Eckstein, a lending industry expert with over 20 years of experience, we explore the possibilities of financing larger business acquisitions, particularly in the realm of custom furniture manufacturing. In this blog post, we delve into the key insights from that conversation.
The Quest for Custom Furniture Manufacturing
The discussion begins with a viewer expressing their interest in buying and manufacturing custom furniture. The sales price for the business they have in mind is a substantial $9 million. However, there's a hurdle they are aware of: the Small Business Administration (SBA) loan, commonly used for business acquisitions, is typically capped at $5 million.
Exploring Financing Options
The viewer seeks information about loan products that offer higher leverage than the SBA but with a higher limit, considering their strong borrowing capacity and the cash flow potential of the business they want to acquire. Beau dives into the possibilities, shedding light on a financing solution involving a combination of the SBA 7A program and a conventional loan.
SBA 7A with Conventional Loan: A Hybrid Approach
Beau reveals that there are banks that offer a hybrid financing approach, merging the SBA 7A program with a conventional loan. This approach can potentially unlock greater financing capacity for business acquisitions. The details are as follows:
- Typically, this hybrid financing can go up to $7.5 million, which significantly surpasses the SBA's $5 million cap.
- Lenders using this approach can finance up to 90 percent of the total project cost.
- In the case of a $9 million acquisition, this translates to approximately 85 percent of the total product costs being financiable.
Strong Borrowers and Robust Business Cases
Beau emphasizes that this financing strategy is particularly suitable for strong borrowers eyeing robust business acquisitions. When the cash flow of the business is robust, and the borrower's financial credentials are strong, lenders are more inclined to approve these loans.
Expanding the Horizon
The conversation doesn't stop at the $7.5 million cap. Beau mentions that even for acquisitions larger than this amount, creative financing solutions are possible. In some cases, a larger seller carryback combined with a mix of SBA and conventional loans can yield total loan proceeds ranging from $7 million to $9 million.
The Right Bank Makes All the Difference
Beau emphasizes the importance of finding the right bank with the appetite for pair-of-pursuit type deals. Not all banks are equipped or willing to offer such financing arrangements, so it's crucial to work with institutions that specialize in larger acquisitions and have experience in structuring complex financing solutions.
Connect with Beau Eckstein for Personalized Guidance
Towards the end of the video, Beau extends an invitation to viewers who are interested in exploring SBA financing, whether it's through the 7A program, the 504 program, or other financing options. He offers to provide guidance and advice to individuals navigating the world of business acquisition financing.
Conclusion
In the quest to finance larger business acquisitions, the key is to look beyond the SBA's traditional limits. By exploring innovative financing options, such as the hybrid approach of combining SBA 7A with conventional loans, entrepreneurs can increase their chances of securing the capital needed for their ambitious endeavors. Remember, finding the right bank and leveraging the expertise of industry professionals like Beau can be the difference-maker in your journey to acquiring and growing a successful business.