Why don’t people just buy their own businesses with an SBA loan? You can escape being a W2 slave with a dick head boomer boss and gain much more equity upside when owning your own business.
You can go on bizbuysell and purchase a business with close to $300k in SDE and finance 90% of the purchase thru SBA.
Grow the business. Then sell to PE. Don’t understand why nobody ever talks about this on here. The search method.
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You can also go bankrupt, and lose all your assets as SBA loans must be personally guaranteed.
Well ya any business can go bankrupt ha. And what if you don’t have many assets?
As in you go personally bankrupt because of the PG. Some debt (eg private equity backed companies), the guarantor doesn’t extend beyond the company’s perimeter, so the company going bankrupt doesn’t touch your personal assets.
It's certainly a compelling opportunity. If I were American and had access to SBA financing, I'd personally be all over it!
However, the reason you don't see more people going down this path (though I wouldn't downplay its emergence), is that these are fundamentally two very different jobs: private equity investing versus operating a small business. There are many posts on this forum with respect to that topic if you're curious to collect some different perspectives.
Ultimately, both paths can generate meaningful wealth creation. On a risk-adjusted basis, PE will generate more. But that doesn't matter if you're not passionate about PE. Different strokes for different folks.
Why risk a ton of your own money/ assets to make money when you presumably have already developed the skillset to earn a salary on someone else's money
Because you’ll forever have a boss and be a bitch to someone else. You’ll never reach true freedom? Pretty easy concept to understand
Fair enough. I actually interned at one of these search funds while I was a freshman, it's certainly compelling for the right person but the process of finding the company is tedious AF. You're working with extremely unsophisticated brokers/ sellers who are unfamiliar with a ton of things you'd typically take for granted. I've seen some of the ugliest CIMs ever with financial data that changes with every new version. In addition, I legit couldn't really relate to these blue collar sellers and always felt like they were ripping us off somehow because we didn't understand the industry well enough.
I defo agree with you about being my own boss eventually but personally, I would look into raising a fund or even just investing my own money full time before being the CEO of "Joe Smith Plumbing and HVAC." If you're interested however, look into searchfunder dot com.
I'm trying to buy a small business right now. I think it is compelling. However, here are some thoughts
Maybe I'm thinking too small -- I'm trying to buy a business for $1-2M on a completely self-funded basis. I know there's been posts where people are aiming a lot higher and raising outside capital and I'm sure they have a different take than this
I also think you are missing an essential consideration: the type of people who have this level of financial sophistication tend not to want to do the actual work of owning a small business.
Buying small businesses in such a manner doesn’t really leave you with the ability to have a COO-type. That means you have to do that work. That work is absolutely dreadful for all the finance bros the OP’s comment is directed towards. It is generally only the high finance types that have the financial sophistication for this type of thinking and being good at finance and being able to run a small business are two totally different things
Some businesses might be difficult. But find the right one with an old lazy man just dragging the business along and it’s easy.
Jeez you are brainwashed the fact you brought up nice dinners. SMH man. That was sad.
partner in PE-growth: what's your reason for not having already gone down this path, if you seem to like/believe it so much and defend it at every turn/against every comment??? rather than typing unsophisticated responses to people's well-thought-out answers, you should show us by your every example and action that this is a great path. let us know when you churn out a couple dozen $millions!
Because owning a small business is often miserable for finance bros like most of those on this site
Short answer: risk aversion.
Because running a business is REALLY HARD.
I know so many retarded finance bros with an SBA loan that bought shit businesses and are wiped/debt slaves now.
It's not easy and it's not fun.
Don't buy some unscalable turd with a ton of PGd debt.
Yeah I'm tired of these search fund glamor posts that pop up on WSO. So many people I know who are debt slaves and barely meeting their mortgage payments.
Do you mind sharing the types of businesses they acquired that ended up being turds? Out of curiosity.
Agreed. Pls share turd businesses.
Just gotta find the right scalable business
The few successful ones I've seen in recent years had some PE backing. NextGen Growth Partners is a perfect example. Their first searcher had an 8 figure exit according to someone I know there.
Have heard the Wharton search fund professor speak (had a successful exit) and it sounds like he found a really good company / product that was just ran like a family business. The foundation of that business was phenomenal and is extremely rare for a searcher to get that lucky to get in at a company like that.
Searches can take 2-3 years too. Personally that's really tough. In that case, build slowly via bootstrapping / as a side hustle seems like a safer bet. Less risk and if it does gain traction, take out loans / attract local angel investors to help accelerate growth. All my relatives who've been successful as entrepreneurs did this (have 3 relatives who own / have sold multi-million dollar companies). No one acquired.
In the process of buying a services business right now. IB/PE/HF background, this will be more of an absentee play with my wife handling most of the day-to-day management (not a FT job) of the existing team. I think it’s a super interesting niche, existing owners built a great reputation and want to monetize to devote time to their other business that has higher capex. It has some cyclicality but also built in hedges and most of the revenue is in a pretty inelastic sub-market.
Ballpark $450k sde, basically zero working cap, capex of $100k but can recoup most through asset sales over time. 3x sde deal. Will go 90% LTV and post debt service will be ~$150-160k of FCF day one. Will expand vertically and geographically while optimizing costs (not a ton there but some opps). Also looking at some horizontal opps but won’t rush any growth outside of the base business. PE already sniffing around it too so should be able to exit pretty easily if we can execute on our plan.
I looked at a good amount of opps and most of the construction, landscaping, etc businesses have very few barriers to entry other than relationships (some harder to develop than others). Looking at a backyard construction business that is lower $ but has some interesting angles, owner turns away a ton of work (like a lot) and still is $250-300k sde with zero capex/tiny overhead. Would be 2.5xish sde (and may be like 2x up front with 0.5x seller note or earn out) with 80-90% LTV and pay back in a year. Challenge is that it’d be just buying the brand (which might be ok because his work has been almost exclusively word of mouth to date and could do quite well with a social media presence) and contractor relationships, has basically no repeat customers, likely does quite poorly in a recession, and it’d be a full time job. Feels like it’s the wrong time to buy it but this space in my area is really in need of consolidation so I’m keeping an eye on it. Kicking myself because there was a larger version of this same business at the same multiple earlier this year that I was too late on. Would’ve been almost $1MM sde and $500k FCF. Could’ve paid back in like 6 months.
What exactly is this business?
Home staging
Did you close on the business and how has it been going? Contemplating this path and would love to chat
Oof no, we didn’t. Seller flat lied about something, we called them on it and ended up walking. Very painful and expensive ending, learned way more than I’d have liked to about business disputes and your actual recourse (or lack thereof).
Any updates with this? Looking into something similar.
Speaking here as both CFO of several true small businesses and as a former SBA lender:
What are some other places to look for deals like biz broker websites but with more credible and established businesses with owners retiring and possibly open to seller financing?
It's not places you need to be looking for - it's people. It's analogous to finding a job. You can apply to 500 job postings and never get a call back but if you know somebody; you can get a job in a week.
I would connect with bankers, CPAs, and attorneys in town and see if they can connect you with their peers that move size (if they themselves do not). Those folks will be aware of what's happening but they won't just out-and-out tell (confidentiality and all) you so you'll need a way to build rapport with them and establish that relationship. All relationships are transactional.
Nobody pulling bitches on SBA loans. Brother please.
I have a good opportunity to do this right now w/seller financing from someone I know but hesitant due to lack of excitement and getting stuck with something I don't enjoy (can't just quit). Pros and cons specific to this opportunity:
Pros: Being your own boss and not having to be a W2 cuck, having your own schedule, super low hours, good pay and you see the fruits of your labor (can expand business and increase earnings and really have amazing pay).
Cons: Live in a boring place, not interact with anyone interesting, fairly lonely work - just overall boring lifestyle unless you're great with your free time and have interesting things to do.
I'd say the risk in this case is very low, working a job is probably more risky here.
If I really had the interest, it would be an incredible opportunity - could really grow the business, start acquiring other businesses in same or different sector, and have a way better lifestyle than 99% of people in finance.
We'll see if I go through with it. I am curious to why others don't do it though - if the business is solid and risk is minimal, what's stopping you guys? Listings online bad? That's how I felt.
Any updates on this?
Decided not to pursue but still have option to do it. I didn’t want to be tied down to where I am and want to pursue something more interesting later so staying at my PE job for now. Money doesn’t motivate me enough, more so meaning and independence. Still unsure of what I really want but certainly not the office life. Being very indecisive doesn’t help, but realized I need to think longer term and go down a path I find real interest in even if it means starting career over or lower pay.
For most and compared to PE, it is an absolute no brainer to do the small business. People are too risk averse and tied to their careers and feel that if they take a “risk” it’ll ruin them, when in reality it’s just part of the learning process worst case. It’s really just a mindset shift and once you’re properly oriented, you’ll do what’s right.
Very few people on this forum are actually entrepreneurial and know how to succeed under limited structure. They’re also very risk averse so I don’t think they’d make good operators and entrepreneurs. But if you believe you can succeed then do it. Way more upside than being a wage slave.
Excuse the poor writing, just my $0.02 given I like the space and have personally diligenced many SMB deals of a similar size for my own curiosity.
$300k SDE (which is basically SMB speak for EBITDA + owner's comp/potential GM/CEO/etc. comp if you're not running it yourself) with 90% SBA financing (not cheap debt, btw) is basically giving yourself peanuts to live off and very little margin of error. Something that small can often be easily devastated by short-term shocks to the business as your capital buffer is low on an absolute basis.
Let's check out some basic made-up numbers for context.
Say you buy a $300k SDE business at 4x and put down $200k equity (ignoring all transaction fees, lawyer fees, diligence, QofE, which will each cost you thousands and you will never get this money back). You now have $1mm of SBA debt (which can be nearly $160k/year to service at present).
So, are you really okay with $140k of earnings from which you still have to take out depreciation (real expense btw capex comes a-callin' eventually) and have a cushion for contingencies (which there will be, because a $300k business is subject to hijinks galore i.e., your best welder got thrown in the drunk tank last night but is needed to supervise on a deliverable due in 2 days so you must pay his $12k bail, your rookie machinist wasn't careful and broke something expensive not covered by insurance, etc.). After all this let's say you're generously taking home $125k for yourself (pre-tax).
Is $125k enough for you? Especially when owning the business requires nearly round-the-clock attention and its not exactly easy to sleep at night knowing you have a personal liability in case anything goes wrong? Your other option is to let someone else run the business but that leaves nothing for you to compensate you for your risk (also do you really trust someone making $125k + 0 bonus to run your business outright? What level of executive will you be able to attract? Will you be required to give up equity?)
A business of that size is also not proportionally less work/stress than one that is 10x that size (a $3mm SDE business does not require 10x the amount of hours/stress/work than the $300k one and so on) so clearly a target doing $3mm SDE, or even $1mm SDE makes more sense then, right?
However, in the 10x situation, you may have to write a $2mm equity check vs. $200k or even more. How many people are realistically in a position to stroke a check of that size and not either be concentrating most of their wealth in one place/betting the farm entirely?
And your multiple may be >4x because now you're competing with a LMM PE who can cave to LP pressure to deploy at the expense of a few IRR points faster than you can rationalize to your wife/kids your need to put their house and their lifestyles on the line in order to overpay for a local print shop when your W2 corp job paying $300k had nothing wrong with it. No more travel lacrosse for the kids and pilates for the wife when your trucking company gets outcompeted because JB Hunt decided to move into town and undercut everyone for 6 months, which is just long enough for you and the other local yahoos to bleed out.
Now many will say that the key is to have multiple businesses like this that you roll up overtime to grow the bottom line but with what money? Money from the business? There goes any personal earnings for the near term. Hope you have lots of savings, otherwise, you'll have to keep writing more equity checks.
The SMB Search game has become crowded, and it is a thesis that was approaching healthy saturation pre-COVID and has now long been blown wide open (I remember thinking I was late to the party when I became obsessed with the idea of Search in 2021). The nature and scope of the space still mean there is LOTS of opportunity, but its much harder than it once was, and the proliferation of private markets data mean you're likely no longer the first person any of these small business owners have heard from about selling their business. You also have the collective consciousness of founders catching up to how PE/valuation works so getting a steal is much less common.
The economics behind the financial engineering and multiple expansion that made these entrepreneur-led SMB rollups lucrative aren't as strong as they were 6-15 years ago. Also, as we're flipping into a new era within the long-term credit cycle many PE firms are starting to "play down a league" into smaller spaces, therefore making even LMM rollups competitive with professional capital and subject to overpricing.
With the evolution of the space the current trend is "firms who back searchers" where basically you approach them with a deal that you have under LOI and they fund it. In return, you get to retain some equity and run your company as if it were your own (oversee operations, growth/acquisitions, etc.), and you've got a capital backstop from the fund in case of emergency.
But this is basically just becoming a LMM portco execs with extra steps.
For those looking to break free from the 9-to-5 grind and seriously consider buying a small business, sbaloansHQ offers not only financing but also guidance throughout the entire process. Their website is straightforward, and the team seems genuinely involved.
SBA loans can really lower the upfront cost, and there are tons of businesses out there with decent cash flow. The tough part is finding a good one that’s not a total mess and being ready to run it. It’s not for everyone, but for someone ready to grind, it’s a great way out of the 9–5.
But I forgot to mention that, besides finding a good business, you also need a lot of patience and hard work to grow it. It's not for everyone, but for someone willing to put in the effort, it's a great way to get out of that dead-end job.
I went from IB > corp dev > corp fin at PE OpCos > starting (not buying) a business funded by an SBA loan.
Most finance professionals are very risk-averse. It's sort of like how you would think doctors would all quit and start their own private practices, but most would never dream of that. High paying jobs attract risk-averse people.
Some other notes...SBA loans are not as straightforward as you might think. Many lenders are still very conservative and will not lend to those with no experience in the space that your target is in. The entire process is also brutally invasive. You will be asked for copies of brokerage statements, bank statements, etc. I always joke with my wife that if we both did not have high paying jobs, we could never have gotten an SBA loan...sort of like a weird catch 22.
Other thing is, most businesses for sale are for sale because they are terrible businesses. I think IB and PE might have clowded your view on that where you see all of these pitch books for companies hoping to get 10x...most would never even sell for 2x.
Interesting perspective. Using an SBA loan to buy a business offers freedom, equity growth, and a clear path to ownership success.
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