This is a guest post from my colleague Matthias Smith, Founder and Owner of Pioneer Capital Advisory LLC, a boutique commercial loan brokerage firm that focuses specifically on helping searchers in the small-to-medium business space with finding the best financing option for their business acquisition
1. Why the DIY Method Doesn’t Work:
Buying a business is challenging. There is a lot involved in the process. Afterall – If it was easier, more people would do it.
One of the most challenging and complex aspects of the business acquisition process is financing. There are numerous banks across the United States that lend in the SBA space. As explained in an article from Tom Thunstrom on Fit Small Business, “there are over 3,000 approved lenders for Small Business loans in the United States.”
As a searcher, you have both time and monetary constraints. Navigating through the financing process on your own can take a toll on both of these items:
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Time:
- I recently put out a survey on my Twitter profile polling my followers that own a small-to-medium sized business on the number of banks that they reached out for discussing financing options. 85.2% of followers had reached out to between 0 to 5 banks to discuss financing options, 11.1% of followers had reached out to between 5 to 10 banks, and 3.7% had reached out to more than 10 banks. From past experience working directly with searchers, it takes several hours of communication (emails, phone calls, and Zoom Calls) with a specific lender to thoroughly discuss and present a deal. If you consider spending 2 hours (minimum) exchanging communications with 10 lenders, that is 20 hours of time (or half of a work week)!
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Money:
Self-funded searchers have financial constraints specific to the amount of money that they have available, both to deploy towards the down payment for a business acquisition, and also to use for living expenses. The longer that a search takes, the more that these funds are depleted. In taking the DIY (“do it yourself approach”) towards sourcing financing options, you are more likely to dip into your down payment funds and living expenses more quickly. Jim Stein Sharpe, a prominent member of the SMB search community, identifies the financial constraints that searchers have in his blog post “Cost of Searching,” where he further expands on the costs involved for searchers, referencing a range from $49,000 to $897,000. As evidenced here, being able to save on time by not taking the DIY approach to sourcing financing, will help with reducing the costs involved in your search, saving you money.
2. The Solution to the Problem: Engaging a Competent SBA Loan Broker:
Loan brokers that work in the SBA space have networks of lenders that they know well and work with frequently. They know which lenders can deliver, and which lenders are not great at delivering. Additionally, loan brokers know which lenders a deal will be a great fit for, and which lenders will likely pass on a deal, or entertain it for a period of time, and then pass. Further, loan brokers know the pricing metrics that different lenders will use for deals.
For example, some lenders will always price business acquisition deals at Prime + 2.75%. Other lenders have more pricing flexibility for deals that cash flow well, and have a buyer that has strong personal credit, transferrable experience to the target company, and good personal liquidity.
Loan brokers also know which lenders will take on loans of different sizes, and which lenders will finance loans in different industries.
As a searcher, working with a loan broker allows you to outsource the time and effort that goes into the financing process. Rather than reaching out to multiple banks and spending time with each of them to present your deal, and obtaining feedback from each bank on if your deal is a fit in the bank’s “credit box” or not, the loan broker takes on this work so that you can focus on the other details involved in your business acquisition.
I have first-hand experience in receiving emails from people that are working with banks that their deal is not a good fit for, and have wasted extensive time on their transaction by not having their deal in front of the correct bank. This is time that could have been saved, had the searcher worked with a loan broker.
In short, working with a loan broker is a proven method to save both time and money.
This guest post was written by Matthias Smith, Founder and Owner of Pioneer Capital Advisory LLC, a boutique commercial loan brokerage firm that focuses specifically on helping searchers in the small-to-medium business space with finding the best financing option for their business acquisition. Pioneer Capital Advisory LLC offers no cost consultations. The firm collects a $5,000 retainer at engagement which is returned at closing, or if the firm is not able to obtain approval from a lender on your SBA acquisition loan. For more information on Pioneer Capital Advisory LLC, you can visit the firm’s website at https://www.pioneercapitaladvisory.com/ . Matthias can also be reached via email at matthias.smith@pioneercapitaladvisory.com or via phone at 608-421-2750.
