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Interest rate for business acquisition loan

1,109 Views | 9 Replies | Last: 3 yr ago by ChoppinDs40
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Per the subject, what is a typical range of interest rates it would take to buy a business for $4-5 Million?

Assume profitability, and buyer has excellent credit, and also has cash and asset equity in the $500-600K range (heard SBA might work with 10% down and more favorable terms?).
cgh1999
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Lots of variables here. How much do you put down? What is the cash flow leverage on the loan as well as the collateral?

What industry? Your experience? Etc.

Could go from low 3's to mid 5' s on a floating rate.

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cgh1999 said:

Lots of variables here. How much do you put down?
We have three homes with about $500K equity between the three. We could sell them all, but would prefer to keep the one producing nice cash-flow. Without selling, we wouldn't have more than about $100-150K cash.

What is the cash flow leverage on the loan as well as the collateral?
Hardly any debt in the residual based service business. Because such small margins, we use outside partners to finance our A/R and we manage the risk through credit insurance. With the owner leaving the owner salary / company profits leaves quite a bit to pay back towards a potential loan.

What industry? Your experience? Etc.
Family business, started in 2007 from parent who has been industry a long time. I've been here about 8 years and have essentially been running things for the last year or two.

Could go from low 3's to mid 5' s on a floating rate.


cgh1999
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I'm a commercial banker in Houston and do lots of business acquisition loans. Happy to jump on a call and discuss further. If it's in my market I'll run with it, if not I can introduce other banker friends. Send me a PM with your contact information and I'll reach out.
Bob Lee
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Do a cost of debt calculation for similar companies/competitors. Should be pretty close to that.
Casey TableTennis
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I generally prefer non-SBA debt, if you can get it. The costs to close SBA really add up.

Prime floating would probably be best case scenario from what I typically see. To get that, probably need to find a niche lender that likes your company/collateral. A bit higher and fixed for a period could still be very attractive.

Is this your family? If so, would they be willing/able to stay on as guarantor?
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It's a parent, not sure they'd want to do that. Would it be better to do 100% owner financing at that point?

I see most loans appear to be 10 years, is it much more on the rate to go 20 years - to be safe on the lower monthly payments?
Casey TableTennis
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I personally haven't seen great rates on anything past 7 years. Anecdotally, if the cash flow from the investment can't amortize itself in 7ish years (and cover tax burden), attractive rates will be hard to come by without strong collateral/guarantees in my experience.

Family loans can be a win for both parties, but can also be an awful dynamic. Tread carefully, but explore if a real possibility.

*see lots of deals, not a lender.

cgh1999
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With limited collateral based on business type, you'll need a shorter amortization (5yrs) or SBA. Seller financing can help offset portions of that.
BizBroker97
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Premium said:

cgh1999 said:

Lots of variables here. How much do you put down?
We have three homes with about $500K equity between the three. We could sell them all, but would prefer to keep the one producing nice cash-flow. Without selling, we wouldn't have more than about $100-150K cash.

What is the cash flow leverage on the loan as well as the collateral?
Hardly any debt in the residual based service business. Because such small margins, we use outside partners to finance our A/R and we manage the risk through credit insurance. With the owner leaving the owner salary / company profits leaves quite a bit to pay back towards a potential loan.

What industry? Your experience? Etc.
Family business, started in 2007 from parent who has been industry a long time. I've been here about 8 years and have essentially been running things for the last year or two.

Could go from low 3's to mid 5' s on a floating rate.



When it comes to acquisition financing options in cases like you've described here, there are a handful of SBA lenders out there who absolutely love these types of employee buyouts by family members - these loans offer the lowest global risk profile to the lender, so they will really offer some outstanding terms.

I've worked on one not too long ago where a son was able to buy out his father with no money down, just using the equity on the balance sheet as equity for the loan.

I'm happy to pass along a couple of trusted lenders' names to you who can really get into the weeds with you and answer your questions with a lot more specificity that I can. Or if you'd like to pick my brain, feel free to reach out. My email is jeremy at sigma mergers dot com.
ChoppinDs40
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try Seller financing?

how long do you think it would take to pay off the loan?
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