RECENTLY FUNDED | $2.6MM SBA 7a Working Capital Loan for a Toy Business Digital Brand Extension | CA
LOAN CASE STUDY: Two design school graduates 5+ years out of college successfully started and grew a plushy merchandising company into a multimillion dollar business. They had recently begun designing a ‘cozy’ style video game (think wholesome and relaxing) to leverage and extend their brand into the online space. They needed working capital to complete the development.
THE SITUATION: Neither business partner had financial or funding experience. They spent some time trying to work directly with banks and quickly realized that they needed a sophisticated, strategic funding advisor.
As they Googled around for funding options, they found Speritas Capital Partners online through our extensive in-house library of expert SBA articles.
After an initial conversation, despite some significant challenges, we saw a path forward and said we could help.
Financing Obstacles
The loan was a long shot because most banks won’t consider a 100% working capital loan given the company’s small(er)size, EBITDA and use of funds (e.g. for a soft asset vs. buying inventory or equipment.)
As there was limited collateral, the loan depended on the business’ cash flow - and unsecured loans for this size for a small company are not only difficult to obtain, they can be very expensive.
These complications limited us to only considering SBA loans from the very beginning.
The key to getting the deal done was getting a 100% working capital loan under SBA classifications. It was a long shot but the only realistic debt option.
Most lenders will not do even a majority SBA working capital loan, forget about 100%.
Deal issues included:
The type of loan request - the company needed working capital to fund the video game development and most SBA lenders will not fund a 100% working capital loan.
This was an expansion into a new product area so execution and completion of a viable product was a significant risk.
Limited net worth of the borrowers - typical of privately-held businesses, the owners had a substantial amount of their net worth tied up in their business.
Learn more about SBA approved sources for the 7a loan equity injection.
Speritas Capital’s Role - Funding Solutions
We started by advising on the business plan and financial projections.
Carefully packaging the story from the beginning was critical because Speritas Capital knew from experience that there was only one funding path that would work - an SBA 7a loan - and packaging the story would be critical to securing a lender.
Our goal was to identify a preferred SBA lender from our network that would even consider a 100% working capital loan of this size.
The loan had strong fundamentals based on the cash flow of the company, and the company’s ability to cover the debt.
Historical cash flow was strong enough to cover the debt service so the lender did not have to rely solely on revenue projections for the new product. Also, the owners had access to personal guarantors with significant net worth.
All the right pieces were in place for a strong package to get a lender interested. Speritas Capital needed a lender who would consider the loan on its merits and not give a knee-jerk ‘no’ because it was 100% working capital.
Digging deep into our SBA lender relationships, we identified one of our lenders who was open to a 100% working capital loan.
Then it was all about telling the story in a way that made the lender comfortable and documenting compliance with the SBA SOP.
As usual, Jeff helped usher the deal from introduction to close.
Questions about SBA 7a loans for a franchise acquisition? Call or text 203-247-4358, send an email, or schedule a call now with Speritas Capital CEO, Jeff Bardos.
About this SBA 7a Loan
Loan Type: SBA 7a Loan for working capital
Lender Type: Bank SBA Preferred Lender
Loan Amount: $2.6MM | 100% LTC
Term: 10 years / Variable
Closed in: 60 Days
“Jeff, we can’t thank you enough. You made the whole process much easier and we appreciate all the time you put into this. This funding is essential to the success of the project, and our company. We are very grateful for your help and guidance through all of this.”
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Learn more about the strategic use of SBA 7a loans for a franchise acquisition.
Conclusion – Post Finance Update
We’re thrilled to have helped strategically fund these two impressive entrepreneurs who found themselves in a challenging loan situation. Now they have the funding platform to expand their success into a new category. We’ll let you know more as development progresses!
Do you need a strategic partner to advise you on your next business acquisition?
Is an SBA 7a loan right for your business? If you want to dig in and learn more about SBA 7a loans, take a moment to read our SBA 7a White Paper for the latest news and Congressional changes.
The Speritas Capital team is always happy to hear your story, learn more about your financing needs and answer your questions. We bring our 30+ years of banking experience and our transparent, strategic approach to every client and every deal, both large and small.
And we never take up front fees.
Jeff Bardos, CEO Speritas Capital Partners
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your financing questions
Schedule a call with Jeff using our online scheduling tool.
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