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M&A Talk (Mergers & Acquisitions), by Morgan & Westfield
Financing an Acquisition – What Buyers and Sellers Need To Know
Oct 26, 2023
This podcast episode discusses different financing options for business acquisitions, including SBA loans, seller notes, and bank financing. It compares private equity funding with bank loans and highlights the excessive paperwork involved in SBA loans. The chapter also explores the structure and risk mitigation of equity co-investment in small business acquisitions, as well as the types of capital providers such as private equity firms and family offices. It emphasizes the importance of revenue and profitability trends when assessing an acquisition and the role of a buyer's quality of earnings report. Finally, it highlights the importance of having an acquisition capital intermediary on your team.
59:47
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Quick takeaways
- Lenders prioritize businesses with upward trending revenue, strong margins, and a strong management team.
- SBA loans are generally limited to transactions under $5 million and have more stringent regulations, while non-SBA loans offer greater flexibility and can finance deals ranging from $7 million to $250 million.
Deep dives
The importance of a well-prepared business for financing
Lenders prioritize businesses with upward trending revenue, strong margins, and a strong management team. A clean set of books and a demonstration of the ability to convey the business's intent are crucial. Lenders also look for businesses with a healthy growth trajectory, with a focus on the buyer's ability to continue scaling the business post-acquisition and potentially make additional acquisitions. Time management and cooperation are key to keeping deals on track and avoiding withdrawal of offers. It is also advised for buyers to engage with a capital provider before making an offer to ensure that the available financing aligns with their plans.
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