Features
Part of 9 points worth checking on acquisition financing
Acquisition financing lenders, compared by what each channel actually lends against
Named acquisition lenders compared by what each lends against, from Live Oak to Huntington, and how a buyer weighs two offers that look alike.
No page can tell you which lender to use. This one names the lenders and what each lends against, so you know whom to call.
What to take away
- Match the lender to what your target owns. A service business with no equipment does not belong at an asset-based lender.
- Ask three questions firsthave you funded a purchase this size, who underwrites, and what do you lend against.
- Compare offers on conditions, security and undertakings. The headline rate is the smallest difference between two facilities.
- What a facility obliges you to is your lawyer's reading, and what it costs is your accountant's. This page is for choosing whom to ask.
- This page covers the United States marketSBA loans and US banks. Canadian deals need different lenders.
The lenders, and what each lends against
What it lends against
- Live Oak Bank
- SBA 7(a) and 504, secured on the acquired assets plus a personal guarantee
- Huntington National Bank
- Cash flow and enterprise value, with an SBA 7(a) arm
- Newtek Bank
- SBA 7(a), including smaller loans and seller notes
- Byline Bank
- SBA 7(a) and conventional cash flow, secured on assets and earnings
- CIT, now First Citizens
- Asset-based lending against receivables, inventory and equipment
- Gerber Finance
- Purchase order and inventory finance
- Crestmark, a MetaBank division
- Working capital against invoices and equipment
Suits
- Live Oak Bank
- Buyers using a government guarantee on a small acquisition
- Huntington National Bank
- Midwest and mid-Atlantic deals with a strong borrower
- Newtek Bank
- Small purchases that bigger banks decline
- Byline Bank
- Lower middle market purchases in the Midwest
- CIT, now First Citizens
- Businesses whose value sits in things
- Gerber Finance
- Importers and distributors funding stock
- Crestmark, a MetaBank division
- Businesses needing a facility after the deal closes
Where it disappoints
- Live Oak Bank
- SBA rules cap the loan and set the guarantee
- Huntington National Bank
- Relationship banking, so it wants the operating accounts
- Newtek Bank
- SBA process and eligibility rules apply
- Byline Bank
- Conventional terms tighten on thin security
- CIT, now First Citizens
- Rarely funds goodwill, so it funds part of a purchase
- Gerber Finance
- Funds a cycle, not the acquisition itself
- Crestmark, a MetaBank division
- Not a buyer of going concerns on its own
Typical size or rate
- Live Oak Bank
- SBA 7(a) up to $5m; 504 up to $5.5m. Rates tied to prime, typical spread 2.25 to 2.75 points.
- Huntington National Bank
- Cash flow loans from $2m to $15m, typical. Rate set by credit.
- Newtek Bank
- SBA 7(a) up to $5m. Rates at SBA maximums.
- Byline Bank
- SBA 7(a) up to $5m; conventional from $1m to $10m, typical.
- CIT, now First Citizens
- Advance rates: 80% to 90% of receivables, 50% to 60% of inventory, 70% to 80% of equipment, typical.
- Gerber Finance
- Advance rate set by the order and the buyer's credit.
- Crestmark, a MetaBank division
- Advance rates: 80% to 90% of invoices, typical.
Minimum deal size or revenue
- Live Oak Bank
- SBA has no published minimum, but most lenders want a deal above $250k.
- Huntington National Bank
- Often wants $2m or more in revenue.
- Newtek Bank
- Works from small loans up, often $50k and above.
- Byline Bank
- Conventional deals often need $1m or more in revenue.
- CIT, now First Citizens
- Typically wants $5m or more in revenue.
- Gerber Finance
- Minimum size set by the order; often $500k and above.
- Crestmark, a MetaBank division
- Often wants $1m or more in annual revenue.
The first question is not which lender is best. It is which one matches what your target owns and earns. A service business taken to an asset-based lender wastes a month.
What to establish about any lender
Whether they have funded this. Not business lending generally: purchases of a going concern, in this size range, in the last two years. Ask how many, and what share completed.
Questions To Ask Any Lender
- Have they funded this size, this type?
- Who underwrites, and where?
- What do they lend against?
- What must they see?
- Conditions and clock before drawdown
- What the guarantee covers
- Who else is paid
Who underwrites, and where. A local relationship manager who submits to a distant credit team is a messenger. Ask who decides, what they see, and whether you can put questions to them.
What they lend against. Ask plainly whether they will advance against earnings where the security is thin, and what they do with goodwill. The answer sorts lenders faster than any brochure.
What they need to see. Get the list at the first meeting and compare it with what the seller can produce. A lender whose list exceeds the seller's records will decline in six weeks.
Their conditions and their clock. What must be satisfied before drawdown, what expires, and what happens if a consent runs late.
What the guarantee covers. Scope, trigger and release, in writing, before you invest time in the application.
Who else is paid. If a broker is arranging the facility, ask who pays them, whether the fee is contingent on completion, and whether one lender pays more than another. That is an ordinary conflict of interest, manageable once disclosed and corrosive when not.
Comparing two offers properly
Set them side by side on the things that are not the headline:
Offer A Versus Offer B
Offer A
- Advanced
- Amount, security
- Guarantee
- Scope, release
- Undertakings
- Reporting, borrowing
- Conditions
- Before drawdown
- Early repayment
- Cost, refinancing
- Seller note
- Required structure
- Fees
- Payable either way
Offer B
- Advanced
- Amount, security
- Guarantee
- Scope, release
- Undertakings
- Reporting, borrowing
- Conditions
- Before drawdown
- Early repayment
- Cost, refinancing
- Seller note
- Required structure
- Fees
- Payable either way
Two offers that differ by very little on the front page routinely differ enormously here.
What no lender does for you
They do not verify the business for your benefit. Their work protects their loan and stops where their security ends, so it is no substitute for your own diligence. They do not decide your structure, though their requirements constrain it, and the interaction is set out on the deal structures page.
They do not tell you whether the price is sensible. A lender that will advance against a figure is not endorsing it, and the valuation methods guide explains the difference. They will not tell the seller anything on your behalf, so funding progress is yours to communicate, as the acquisition financing page describes.
Common questions
Should I use a finance broker?
They can save time in a channel you do not know.
How many lenders should I approach at once?
Enough to compare, and each one told that you are comparing. Undisclosed parallel applications damage every file.
Is an SBA loan always cheaper?
It is designed to make lending possible, not to be cheapest. Weigh the extra process against whether the deal is fundable otherwise.
What if every lender declines?
Read the reasons together. They usually point at one fact about the business, and that fact belongs in your renegotiation with the seller rather than in a search for a friendlier institution.
