In the transaction my firm arranged, the two new buyers put down 15 percent of the purchase price ($240,000), and the owners loaned them the remaining 10 percent ($160,000) to meet the 25 percent minimum required to get an SBA-backed 10-year term loan. Wells Fargo loaned them the remaining 75 percent ($1,200,000) in the SBA loan. If a bank wanted more evidence of the owners' confidence that they will be paid back, the buyers would put down 10 percent and the owner would lend them the remaining 15 percent.
What if the owners were not willing to lend them the money — and the employees had more cash to invest in the purchase? If they put down at least 25 percent ($400,000), the SBA would allow a bank to lend them the remaining 75 percent ($1.2 million).
That is still more manageable than getting a standard bank loan that is not backed by the SBA. With a traditional bank loan, the buyers would typically need to put 40 percent of the purchase price down, borrow 40 percent and get the owners to lend them the remaining 20 percent. Going that traditional route in this case would have meant the buyers had to put down $640,000, borrow $640,000 and get the owners to lend them $320,000. That would have been a lot harder for them to pull off.
The deal was a relief to the sellers, who wanted to continue the legacy they had built at the business. "We have several thousand customers that need their equipment serviced," said Broderick. "We didn't want to leave them in a situation where they wouldn't be able to get any kind of good service."