How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask JerrySJD Your Own Question
JerrySJD, Attorney
Category: Business Law
Satisfied Customers: 821
Experience:  Attorney for business formation, business sales, tax, partnerships, sole proprietors and buy/sell agreements.
Type Your Business Law Question Here...
JerrySJD is online now
A new question is answered every 9 seconds

SBA Loan Question. My partner and I are looking to acquire

Customer Question

SBA Loan Question.

My partner and I are looking to acquire a business for 7 million dollars. We would raise about 2 million dollars in equity and try to do the rest, 5 million through an SBA loan if possible. The business likely qualifies and I suspect our only issue will be the guaranteeing of the loan (we had a preliminary meeting with a bank which was very favorable but the guaranteeing issue was brought up). The business generates roughly 2 million EBITDA and has net working capital of 1.5 million and 750k of property. We do not have enough assets to guarantee the loan but are wondering if there is another way we could structure it, perhaps by guaranteeing it through another entity that we are also employees of? Is this possible? I'm completely new to SBA loans and not exactly sure what the process is, or how difficult it is to get a loan. The business could easily support a 3x interest/ebitda coverage or higher, which wouldn't be an issue and this wouldn't be a very risky laoan. Qualifying for the loan is what I'm uncertain of. The business has been in existence for 24 years and revenues have grown consistently every single year. It is a manufacturing business.
Submitted: 5 years ago.
Category: Business Law
Expert:  JerrySJD replied 5 years ago.

The loan will be underwritten based on the EBITDA cash flow. You state that this is adequate to cover the loan. That means you should qualify. The guarantee is a personal guarantee that they will want from the shareholders/owners. You should try to avoid this if you can. You can try and they may say no, but at least you tried. There is some collateral available and that should be enough. It does not matter that you do not have enough assets to guarantee the loan. It is the guarantee that they want. They can follow you around for a long time to collect.

The best thing you can do is apply and see where it goes. Business is sound and should qualify. If you have to throw in a guarantee, then fine, but see if the banker can push it through without one.

Thank you for using JustAnswer. Please click "Accept". If you need more, just let me know.

Customer: replied 5 years ago.

Thanks. Let me run this answer by my partner and get back to you.

Expert:  JerrySJD replied 5 years ago.
Okay, sounds good. Might as well apply (once you guys agree) and see where it goes.
Customer: replied 5 years ago.

We are definitely going to pursue this route. We were concerned that our net worth's are probably 100k each and this could have disqualified us from the loan. We have other ways of securing financing but qualifying for a 6-9% SBA loan would make a big difference to our pockets on a 5 million dollar loan.

Expert:  JerrySJD replied 5 years ago.
Understood. They want a guarantee, which should not be undermined by your net worth. The guarantee alone is valuable to them, regardless of your worth, since you have an ongoing income and potential for future income. Credit score will be checked, but a guarantee is a guarantee, no matter what you have.