CASE STUDY: One of my SBA financing consulting clients brought me this deal recently - a B2B company that converts different types of media. My client is in the LOI stage of the deal and has not yet begun the due diligence on the company. The buyer has been Pre-Qualified with us for a business with a purchase price of $1M or less, and with adjusted net income of at least $60K after debt service. We have also covered the types of businesses he should consider buying that would be approved financially for business purchase financing based on his personal and financial data.
Here are the facts on this CASE STUDY for business purchase SBA financing:
Seller Information & Deal Structure
* Purchase Price: $1M
* Adjusted Net Income: $264K (Primary Items Off Tax Returns/Financials)
* History of Earnings/Adjusted Net Income: Increasing over the last 3 years
* Interim 2006 Earnings: Up over last year
* Deal Structure: 20% down payment, 70% SBA loan financing, 10% owner carry
* Owner Carry: $100K
* Working Capital Needed: $50K
* Total Loan Amount: $750K
* Lease: 10 Year Term (Needs to be worked out)
* Business Real Estate Available: Yes - $1.395M
* Established: 7+ Years
Buyer Information
* Down Payment Available: $200K - 20%
* Down Payment Orgination: 401k Plan & Savings
* Geography: Lives in Area
* Work Experience: High Tech - Understands this type of business
* Approximately Credit Score: 780
* Cash In Reserves (Liquidity): $70K (2 Months Living Expenses)
* Monthly Living Expenses: $45K
* Spouse: None
* Outside Income: None
* Currently Works: Unemployed - Looking fulltime to purchase a business
Open Issues On This Deal
* New lease has to be a total 10 year term (5+5) (3+3+4) etc. to match the 10 Year loan term
* Buyer needs to complete due diligence - 50% of deals fall out
* Buyer needs to convert LOI (letter of intent) to Purchase Agreement
* Buyer needs to complete the forms for financing
Conclusion
Even though this buyer doesn't have any real estate collaterial on this deal, I would be able to get SBA PLP 7(a) financing based on the cash flow of the deal and on our contacts at several financial institutions. His work experience relates to the business he is buying, he has a higher that average credit score, and his living expenses are well within the debt service coverage ratios. He also has $70K in reserves to live on in case the business hits any future "rough spots". Also there would probably not be a business plan needed. Buying the real estate at this point probably doesn't make sense since the debt payments would probably stretch this deal out too much.•
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