Navigating SBA Loan Challenges for Mid-Sized Businesses

Mid-sized businesses face significant challenges securing SBA loans due to strict debt limits, which cap financing at $5 million. This ceiling typically aligns with businesses having around $1.5 million in EBITDA, leaving a gap where many companies, specifically those with EBITDA between 2.2 million and 4 million, struggle to find suitable financing options. These businesses often fall into a 'no man's land', as they are either too large for typical SBA loans or too small to attract private equity interest. The limited number of banks willing to offer 'SBA plus' loans further complicates access to additional funding, as lenders become increasingly selective. Consequently, sellers may resort to structuring deals with a maximum SBA loan supplemented by a subordinated seller note to bridge financial gaps. Specialized industries, like e-commerce, present extra difficulties due to lenders' lack of expertise in assessing their risk, adding another layer of complexity for borrowers in this sector. The overall inefficiency in securing financing for businesses in this size range remains a persistent issue in today's M&A market.