I am seeking a lender who will finance 100% (or 90% with the other 10% seller financing) for acquiring a business that comes with real estate. The business is very profitable with adjusted net income adequate enough to pay both loans as well as other needs. The principal has high fico score. No collateral outside the proposed acquisition is available. The required loan is below $1M without real estate and up to $2M with real estate.

Are there any such financiers? Thanks for any pointers.

Seth:

I don’t know of any lender that would do this type of financing specially when the collateral for half of the loan would be the business entity itself.

You might be able to get someone to take a look at the real estate with partial seller financing, but I do not think the business loan is attractive without additional collateral for non-bank lenders.

I think it is unfair to label the collateral as "half the business entity" as if it were a risk. Half the loan is really for the real estate, which is justifiably collateralized. Only the other half needs to be evaluated for risk. The fact that the established business entity is highly profitable (repayment abilities), the principal has high credit score, seller accepting a portion of the loan etc are substantially indicative of the reduced risk. Any remaining risk is what leads to a higher interest rate. If there is no risk, SBA and other regular channel financing is available and no private borrowing options need to be explored.

The only difference between conventional SBA guaranteed loans and this loan is a 15% down payment, and any lender willing to take that extra 15% risk gets rewarded with a higher interest rate.

Saying that only ”.. Only the other half needs to be evaluated for risk….” is not the way that a credit person will look at it. Even with tangible collateral, the payment capability is assessed. That is the reason why we go through the trouble of determining NOI on income producing property deals.

”If there is no risk, SBA and other regular channel financing is available and no private borrowing options need to be explored.” You mean to say that our portfolio has no risk? That would be news to our “special assets” department I think it would be to your customer’s benefit to bring in someone just for Mezzanine financing. That is, someone willing to come in with a junior lien position.

”The only difference between conventional SBA guaranteed loans and this loan is a 15% down payment, and any lender willing to take that extra 15% risk gets rewarded with a higher interest rate. ” I think that all of my employers would pass on a business acquisition loan with a proforma relationship of 5.66X debt to worth {which is what 15% equity and 85% debt financing would result on} even with an SBA guarantee.

Collateralized and noncollateralized aspects of the loans are not treated through the same risk. A "credit person" looks at them differently both for risk assessment as well as interest rates.

The payment ability is satisfactorily answered by the "adjusted net income". And no mention was made about the 15% being equity. It is 100% loan. If equity is preferred, larger than 15% can be given, but I am pretty sure that is not what lenders are after, being lenders.

Please read the original message again - the question is clear: are there any such financiers who would take the extra risk (e.g. the 15% downpayment part given that other aspects of the loan are fulfilled very well - namely, credit worthiness, business cashflow etc). The question is addressed to those who have a positive answer. I know as well as you do, such lenders are rare and therefore the default response is moot.

-seth

ps: personally I feel SBA is a waste of taxpayer money. SBA's guarantee is used as additional insurance by the banks and not as a substitute for deficiencies in a business loan application.

Seth - Just calm down! LU was just stating his opinion, through his perspective as a credit professional. Stating:
...is not a "negative answer", but simply a statement of fact, and then offering structure advice - which YOU asked for. (BTW, the SBA IS additional insurance for lenders - thus inticing them to make loans they may not otherwise make).

I agree with LU - I too don't know of any lenders willing to finance the goodwill portion of your loan. That doesn't make there aren't any. As previously stated, finding Mez or seller financing would certainly increase your options.

I certainly wish you the best in getting this put together.

Seth:
I think that my situation may be close to the same as yours. I am attempting to purchase an apt. complex. It takes 20% of the asking price to assume the existing loan. I have been looking for equity capital to fund the 20%, but no luck. The note plus payment on the equity at 6% would still allow for extra funds for myself. I am willing to give up 50% of the future value in four years to cash the equity partner out. Does anyone know of situations like this being funded?