- On April 24, 2017
Here are general rule of thumbs provided by AdvisorLoans that will ballpark the amount of an SBA acquisition loan advisors can typically qualify for. These examples apply for borrowers with good credit, a predominately recurring revenue model, 25% seller financing, and a debt service coverage ratio (DSCR) of at least 1.25 for the combined practices.
- The SBA lenders we work can typically lend about 6x (sometimes 7x) the borrower’s revenue for an acquisition. So we can typically get a 700K producer qualified for about a $4MM acquisition loan.
- SBA loans typically allow for advisors to qualify for the highest dollar amount in comparison to their current production (but SBA acquisition loans do cap at $5MM).
- Our lenders underwrite based on what the end business will look like.
- Since these are cash flow based lenders they can consider acquisitions that may result in more debt than 6x the existing buyer’s revenues if the cash flow of the combined firm supports it.
- In terms of the cash flow of the end entity, the EBITDA (revenues less any operating expenses paid by the firm) should support the debt at 1.50 times. However, we can get a 1.25 DSCR qualified all day with good credit and the SBA minimum is 1.15.
- There are enough credit and underwriting variables involved in an acquisition loan that getting a prequalified lender letter is the best practice we consistently encourage.
- Contact AdvisorLoans for a free consultation.
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