I used SBA to buy $2M in cashflow with only $300k down.

Here’s how I did it (and how you can too):

First, a quick overview of SBA:

You can borrow up to $5M for a business or $10M if it’s real estate heavy.

If you’ve never bought a business before, I’d recommend starting with a $1-2M acquisition.

If you buy well, this will be big enough to set you up for life.

You’ll have $300-500K in cash flow before debt service.

(even if you don’t grow the business at all)

More on buying your first business here:

You’re going to need an amazing SBA banker.

The SBA process is lengthy and you want someone who can help you through the process.

If you do it right, you can end up paying as little as 5% down.

Here’s how:

The trick is to have the seller take 5-10% of the sale price as “full standby” seller financing.

This means they don’t get any payments until the bank is paid off.

The SBA can then treat this as equity.

You can also have investors provide the equity if you don’t have it.

Our total transaction value was $6M (3x cash flow).

Because @XavierHelgesen and I had more experienced, the bank was comfortable maxing the loan.

However, we still had to convince the sellers to take more in seller notes.

@XavierHelgesen This was difficult because we were buying two businesses and combining them with the same loan.

Most customers were on monthly autopay–which was super helpful.

Eventually, after some twists and turns, we were able to close:

$300K down, $700K seller financing, $5M SBA loan.

@XavierHelgesen In three months, we pulled out the $300K we had put down.

Debt coverage was over 2:1.

If this was the only deal we did, and we just made sure the businesses didn’t fail…

We likely would have more money than we’d need for the rest of our lives.

But there’s a real caveat…

@XavierHelgesen You do have to make a PERSONAL GUARANTEE.

This scares many people away from using SBA financing.

But if you find a good enough deal, a personal guarantee is a favorable risk-reward trade off.

@XavierHelgesen Let’s say your business is struggling.

If you are a good operator, it will be stressful, but you’re likely to find a way to fix it.

Plus, banks will work with you to defer payments if you communicate a good plan to them.

The risk is real, but often overstated in our own minds.

@XavierHelgesen That's a wrap!

If you enjoyed this thread:

1. Follow me @SievaKozinsky for more of these
2. RT the tweet below to share this thread with your audience