Many larger deals are SBA-oriented. This is a better method for buyers because they get a 10 year repayment period, and it is better for sellers because they can get more money. In 2018, SBA lending limits are changing and they will be bringing 90% of the funds to the deals. It is really good for buyers and sellers.
Today, we are talking with Stephen Speer who is the VP and Business Development Officer at BankUnited Small Business Finance. Stephen is a lender, not a banker. Bankers have a tendency to over-promise and underdeliver. We had a bank deal that took over 90 days to close. Both the buyer and the seller were beside themselves with frustration. With a transaction we recently did with Stephen, we got a commitment letter in 34 days which put us two weeks away from closing.
This is an SBA transaction that will close in 30 to 45 days which puts us on the same playing field as cash buyers. Today, we are going to cover benefits of the new SBA guidelines and how they benefit both the buyers and the sellers.
- How the SBA aspect of buying and selling online businesses is becoming more prevalent.
- Stephan has been lending for 25 years and is now located in Tampa, Florida.
- He works in the ecommerce business acquisition space.
- He has been with BankUnited for the last two years.
- The SBA allows lenders to take a greater risk by guaranteeing 75% of that loan.
- The purpose is to encourage small business lending.
- Stephen has formed an ecommerce lending team around him.
- BankUnited is a preferred lender and everything is underwritten and funded in house, but the loan has the SBA default guarantee.
- Buyer qualifications include income, assets, assets after closing, credit, and collateral. Does the actual business cash flow based on the structure of the deal.
- Asking the right questions to make sure the buyer is the right fit for the ecommerce space and business that they are purchasing.
- Getting financials up front and looking at a solid year of tax returns and a ramp up year.
- How most sellers in ecommerce sell within three years because the trajectory is going up in large multiples.
- Profit and loss statement plus addbacks equal total earnings. Interest and one time expenses area add backs. Most people want to minimize their tax exposure.
- Do not commingle two businesses together when you are trying to sell one.
- Getting off of schedule cs and doing business tax returns.
- Having an independent third party do a business valuation.
- Have someone do ecommerce due diligence to poke holes in the financials.
- 25% injection or down payment with 10 or 15 from the buyer and 10 or 15 from the seller in a seller note.
- In 2018, the buyer will only have to come up with a 10% injection, and the seller won’t have to come up with anything.
- This will have more sellers open to financing.
- BankUnited feels comfortable up to a $5 million loan. There are different variables, but with the right buyer they can go high.
- They will work with buyers on the SBA process.
- What does an SBA loan cost? There is a deposit for third party fees like business valuation, appraisal, titles, and attorneys. It’s usually about $12,000 that is financed into the loan. Plus a 3.5% SBA fee.
- It the deal falls apart the money can be used on the next deal.
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