Not All SBA Lenders Are Equal

However a business sale is a complex transaction with many crucial details that must be managed; the right lender can make all the difference in how well and soon things get done.

The banker who takes good care of your business line of credit may not be the right guy to finance the deal to sell your company.

In that case, they may have a long and painful learning curve ahead as they try to understand whether the deal is valid and all the pieces are in place.

They know what a good deal looks like and have a network of professionals who can get things done quickly.

Putting together a business and real estate purchase requires knowledge of construction and owner occupancy requirements and how to manage pari-passu.

Not all lenders have the experience or knowledge to make it happen.

You’ll get the benefit of their experience – both good and bad – with specific banks and their track record for closing sales quickly.

Long delays, redundant requests for documentation, and not having the right professionals available for appraisals and other vital functions are sure signs that the lender may not have the experience or resources to get the deal done.

Need a referral? I would be happy to share my personal contacts. Just call or email me!

WSCB

News & Events

News Details

WSCB

WSCB

WSCB

WSCB

WSCB
WSCB
Joe Shemansky     03/12/2024

Not All SBA Lenders Are Equal

In a time of rising interest rates, inflation and worries about recession, it’s common for business sales to take much longer than usual. This certainly adds to the complexity of closing a business deal. No matter what the economic climate is, a business sale is a complex transaction with many crucial details that must be managed. The right lender can make all the difference in how efficiently and quickly deals can be done. In times like these, it’s more important than ever.

There are more than 1,500 lenders nationwide that offer business acquisition loans, better known in the SBA world as the 7(a) loan program. When choosing an SBA lender to work with, it’s essential to understand their track record with loans similar to the one your deal requires. 

When looking for a lender, you should consider more than the volume of loans and where each lender stands on the ranking list.  For instance, many large, national banks appear on the SBA’s top lending lists. But in our experience, some of them lack the appetite to make multi-million-dollar deals happen from a local branch or for specific types of businesses (like construction businesses). The banker who takes care of your business line of credit, is most likely not the right guy to finance the deal to sell your company.

Even if a lender can do the deal, they may not be interested. Most lenders manage a portfolio of loans that they’re trying to balance or enhance. They may seek out (or avoid) specific industries or deals within a certain range. Suppose they’re not familiar with doing deals in the construction industry. In that case, it may be a long and painful learning curve ahead as they try to adjust and understand whether the deal is valid and all the pieces are in place.

That’s where an experienced Business Broker and M&A Advisor can be invaluable, especially those with deep construction-industry experience. We have established relationships with several lenders who have specific knowledge and experience in the construction industry. These lenders understand the cycles and financials, along with what the assets are worth in these types of businesses.

An experienced lender knows how to manage the more-complex deals. For example, SBA 7(A) loans for buying companies and equipment have a $5 million cap with a 10-year maximum loan term. But SBA 504 real estate loans can have up to a 25-year loan term. Some deals can become more complicated, especially when the seller is including their commercial real property in the deal. This would encompass doing two types of loans, one using the 7(A) loan program and the other using the 504 loan program. And depending on the value of the business, versus the value of the property, there may need a structure called a pari-passu done to manage this deal. This would require a SBA lender, who has extensive experience putting pari-passu deals together and getting both transactions closed simultaneously.

Putting together a business and real estate purchase requires knowledge of construction and owner occupancy requirements and how to manage pari-passu. Pari-passu is a Latin phrase meaning “equal footing.” It pertains to situations where two or more assets or obligations are equally managed without preference. Combining an asset and real estate purchase for a company is both a science and an art form.  Not all lenders have the experience or knowledge to make it happen.

So how should you choose your SBA lender? 

The first step is to work with a Business Broker or M&A Advisor who has an established track record in construction industry business sales. Then, take their guidance. A good Broker/Advisor has closed dozens of deals and should be able to quickly determine whether a lender has the proper experience and knowledge to make deals happen in the construction sector.

Over the years, We Sell Construction Businesses has developed a network of lending professionals, who have proven they can get things done. We have already done the homework to find lenders who have the resources and experience to handle the complexities of construction business acquisition loans. You’ve worked hard to build your business. We can eliminate a lot of the risk and stress in the sales process.  

Contact us to see how we can help you.


This blog was originally written by Joe Shemansky, MCBI, M&AMI, CM&AP, CBI. Joe is the Principal Broker-Owner of We Sell Construction Businesses (www.wesell construction businesses.com), which is headquartered in Clermont, Florida. We Sell Construction Businesses provides business brokerage and M&A transaction services to main street and lower middle market construction business owners, looking to sell their businesses. He can be contacted at 352-404-9191 or joe@wesellconstructionbusinesses.com.

WSCB

WSCB

Subscribe To Our eNewsletter

WSCB

WSCB
WSCB