I would like to buy a large business that cash flows but I need a lot of money to buy it, where do I start? I could leverage my house?
Google and talk to Codie Sanchez, ni am told they do amazinv things for entrepreneurs.
That’s the kind of money that if you don’t know, you won’t get it.
Illuminati?
Friends and family
Do you have any money or experience?
Cash flows without these huge interest payments. Cash flows with them?
How much liquid capital do you have? You will need a minimum of 10% down plus operating capital to purchase a business with an SBA loan, and more if you tried to get a traditional loan.
Do you have $1 million in liquid assets (not equity in your home)?
If not, sorry to say it probably isn’t possible to finance a business that size, even with good credit.
This is good to know. I am hoping to somehow find $10M to build a strip mall/condo building and have $200k. I guess I need to start hustling.
A bank. Walk inside and ask to speak with a lender.
Read: “Buy Then Build” - Walker Deibel
Tons of tactical info on buying your first business, including all the different financing avenues.
You’re going to need some significant skin in that game. What $ amount can you personally put up? In addition to your $, do you have any collateral? What experience do you have in running that type business? What general management and financial background do you have?
As for the business, what is the valuation based on? Does it have a 3-5 year track record of profit that supports that valuation? Any assets that can be collateralized?
And BTW, there are numerous “Bay Areas”. You’ll want to specify which bay you’re near.
Just saw a comment that mentioned this was real estate, similar to a waterfront hotel.
An operating water front hotel in San Francisco probably trades at a 4% cap rate. SBA rates right now are at like 11%. Commercial real estate loans are probably like 8%. I find it very unlikely the numbers would pencil.
I’m evaluating the financials now.
Business broker here.
A $6-$7M business can be purchased using a maximum of $5M from an SBA loan and then either seller financing or a conventional bank loan.
Plan on bringing around $1M to the table of your own money or from private investors. You may be asked to put down 10% of the purchase or supply your own working capital once you take over.
Your story matters. The bank and the seller need to feel confident your team has the experience to run a business of this size and industry.
Depends on the industry, but expect the lender to look for a debt service coverage ratio of 1.5 - 1.75 to secure a $5M SBA 7a. This means that the cashflow (including OP’s salary) needs to be 1.5-1.7x the annual debt service amount. If your ratio is less than 1.5, you’ll have a hard time securing a multi-million dollar 7a loan. Debt-service ratio is the most important metric in securing bank financing, FYI. Also, 15% down may be a more realistic expectation than 10% unless OP has a strong narrative. I’m in the same boat as OP trying to do the same thing now. DM me any specific questions.
This is interesting, I found this out recently but more as it related to purchasing a commercial property. If the property is leased or will be leased, the income from the tenants should be at least 1.5x what the mortgage is (or whatever it’s called in that scenario)
Can be difficult to get seller financing with an SBA loan
It’s actually quite popular to pair SBA and SF.
Thanks. I read in Walker Deibel’s book Buy Then Build that SBA is hesitant or has restrictions with SF. Encouraged to hear it is popular, as that was my plan before reading the book.
Or OP plus a partner can each borrow $5m towards the same business.
This is fascinating; thanks for the insight
You could get a maximum of 10mill from the sba to get a small business. They’ll give five for the business and five for the real estate. Most people end up making more on the real estate imo.
my experience with SBA was absolute crap. they would not lend me a penny, eventhough I was willing to put 50% of the price. SBA are piece of shit. All they wanted to do was make me go on seminars and give me useless advice.
Maybe if you went to those seminars you’d understand what SBA actually does
I did go and did understand what they did. still of opinion that they are useless.
You need to work with SCORE to develop a business plan. The SCORE people usually have the pipelines to the lenders.
yup did that as well.
Shaan Puri’s My First Million podcast on the Egg Carton Business just might give you a few ideas on how to get creative on how to finance it. Good luck on it
Thanks for sharing that amazing podcast. Only ideas I saw on financing it were a seller’s note, debt from the bank, and ensuring consistent profitability from the business to clear due diligence with the bank. Am I missing something?
Others are quick to judge here so Ill refrain since I dont know anything about you. Another broker has covered the SBA part. Traditional financing is another although it will be hard to find a bank willing to do any commercial lending like this without going SBA route. An alternate method is finding a private or group of private investors. Surprisingly there are actually a lot of investors on Twitter actively looking for deals. They have formed their own little community and I know people who were successful securing funding this route. Look for tweets talking about ReTwit, LP, GP and you will find the community of people. Maybe you can find money there…its unconventional, but we live in an unconventional world, and buying a business really has no rules so anything goes.
I like alternatives. I would definitely consider it. What rates are private lenders offering?
Do you have a business plan for that business yet?
Yes. It already exists. I would just take on the business.