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In our continued quest of radical transparency, follow along as we are openly sharing information to build trust and keep all stakeholders updated through a monthly newsletter. Thanks for joining us on this journey!
TLDR
Shoutouts from the local ETA community
There are great resources for Denver searchers
We’re surrounded by great mentors and advisors
Losing on competitive offers sucks... but it’s how you bounce back that really matters
Deep Dive: What Sellers Should Know About SBA Loans
Final Thoughts from Duncan: Leveling Up with Each New Deal
Shoutouts
Stan Doida and Trevor Crow from Doida Crow Legal for hosting the first (of hopefully many!) M&A Success Summit. This was an incredible opportunity to get the many stakeholders of the SMB M&A community together to provide a state of the market and many helpful tips and strategies for our first acquisition.
Our mentor and team executive coach Alistair Lobo for helping us prepare and deliver two LOIs this month. Alistair ran through some practice scenarios with us to prepare for negotiation conversations and with that dry-run, we felt more prepared than ever walking into the discussions, and left them knowing we had presented our best case and offer.
Our MBA Alma Mater, CU Boulder, (and specifically Shannon Jones, Garth Fasano, and Adam Markley) for hosting a special ETA Meetup at the business school in Boulder. It was great to be back on campus and see old friends and advisors like Erick Mueller and see how they have embraced ETA as a new part of the MBA curriculum.
Wins & Losses
Win: Two More Offers Submitted! → While these offers weren’t ultimately accepted, we are proud to have submitted offers that showed the value of the business and had a very strong case to get across the finish line with little re-negotiation on deal terms. We firmly believe that this transparent approach is the most sustainable option for our reputation in the SMB M&A space for the next 20+ years.
Win: Getting KPIs Back on Track → KPIs slipped for two weeks in a row because we were so heads down on the two LOI submissions, but after a long conversation with the team and an added emphasis on activity levels, the team bounced back in a huge way and we are back on track to make Q4 our strongest quarter yet.
Win: Proprietary Search Machine is Running! → We’ve successfully launched our AI-driven and mostly-automated proprietary search campaign! We are now fully running this race with two legs and are getting more deal flow in the door.
Loss: Getting Too Emotionally Invested → Losing out on two LOIs that we felt strongly had a chance to get accepted hurt, and although we try not to get too high or low emotionally with each new offer, it is only natural to start picturing yourself in the driver’s seat. We pouted for about a day, then jumped right back into the game with a list of things to improve upon moving forward.
Activity by the Numbers: October
335 = Newsletter subscribers
44.6% = Last month's newsletter open rate
45 = Deal-specific outreach to CO business brokers
18 = Deals evaluated
19 = Meetings with sellers/owners
2 = LOIs submitted
Subject Deep Dive:
What Sellers Should Know About SBA Loans
Buying a small business with an SBA loan offers potential buyers a way to finance a significant portion of the purchase price, typically with a smaller down payment. However, as the business owner, you may not be familiar with the SBA loan process and how it could impact the sale timeline and your overall outcome. We’ll walk through what the SBA loan process entails, what buyers look for when selecting a lender, and what types of deals are most likely to secure SBA financing.
What is an SBA Loan and Why Do Buyers Use It?
The SBA 7(a) loan program is specifically designed to assist entrepreneurs in purchasing businesses with more favorable terms than conventional bank loans. A buyer may choose an SBA loan because it allows for lower down payments (typically 10%) and longer repayment terms (up to 10 years), making it easier to manage cash flow post-acquisition. This financing route is especially appealing for first-time buyers who may not have a large amount of capital available upfront. However, the underwriting process can add weeks or even months to the deal timeline due to SBA-required documentation and thorough evaluations.
What Kind of Deal is SBA-Approved?
For a business acquisition to be eligible for SBA financing, the target business should have stable cash flows, proven profitability, and detailed financial records. Lenders will assess both the financials of the business and the buyer’s experience in the industry, as SBA loans are “cash-flow loans.” Generally, lenders prefer businesses with annual revenues between $1M and $10M, as these tend to show reliable earnings and manageable debt loads. Deals with owner-financing components, like a seller note, often appear more favorable to lenders, as they demonstrate that the seller believes in the business's continued success.
How Much Can a Buyer Expect?
Typically, SBA loans cover up to 90% of the business purchase price, allowing buyers to put down around 10%. For example, if a business is valued at $1 million, the buyer might bring $100,000 in cash while the lender provides the remaining $900,000. However, the loan size depends on several factors: the business’s cash flow, the buyer’s creditworthiness, and SBA guidelines. The SBA’s maximum loan limit for 7(a) loans is $5 million, which generally covers the majority of small and mid-sized business transactions.
Choosing the Right Lending Partner
Not all lenders are SBA-preferred, so selecting one that has experience with SBA acquisitions is essential. Experienced lenders streamline the process by ensuring compliance with SBA standards and may help expedite the underwriting phase. Buyers often prioritize lenders who understand the unique characteristics of SMB acquisitions, provide transparent communication, and have a track record of closing SBA loans for similar businesses.
Setting Realistic Expectations
As the seller, understanding the SBA loan process can help set realistic expectations. On average, SBA loans take 60-90 days to complete from the initial application to funding, largely due to the in-depth due diligence. Buyers may need time to meet both lender and SBA requirements, so flexibility on timing can ease the process. Additionally, lenders may require a formal business appraisal and detailed financial history to determine fair value, so a well-prepared documentation package can smooth out any hurdles.
In summary, while SBA financing offers advantages, it requires thorough vetting from lenders, particularly for first-time buyers. By understanding the buyer’s financing path, you can anticipate the timeline and avoid surprises as you move forward in the sale process.
Final Thoughts
Duncan here - We had two LOIs that didn’t close last month. At first glance, it’s easy to get frustrated by that… and, trust me, we were. However, every time we get something that far into the pipeline, our learning as a team increases exponentially. I am excited about our repetitions at the deal-making process – sitting at the table with a seller and figuring out what they are looking for and how it aligns with our vision. It’s hard to recreate and practice this process. We are long-term oriented, and while we are still searching for an acquisition, it feels like all these at-bats are enabling us to level up.
Your support fuels our journey forward, and we are immensely grateful.