I came across your article as i was doing some research on a business purchase i am in the process of negoitating.
I have a asset based purchase price of roughly $835000 and need the 20% down for the fulfillment of an SBA loan. I am purchasing a printing company with margins around 7-9% annually.
I have a group of investors whom have approached me with the 20% down. However they are asking for a 10 year P&I and a 20% return on total revenue over the 10 years. The group feels strongly that they will be able to grow revenues by 5-10% annually. Before i go into heavier conversations with them i wanted to be sure that this is as ridiculous as it sounds… in my opinion.
There is an old saying that says “those who have the money make the rules.” So to answer your question, it sounds a bit steep, but if it’s your only option then it’s not surprising that this is where your negotiations are starting with this group. I would certainly recommend negotiating and seeing how much better you can get the deal, especially if you don’t have another way to get the money. Under this deal, however, they’d certainly be getting a nice little return on the money and value they would be providing (and there’s no guarantee that they’ll help grow your revenues by that much).
If you have the money for your downpayment, or part of it, sitting in a 401k or IRA account, then you could use a ROBS to rollover the needed funds from those accounts to get your SBA loan, without paying taxes or fees. You could also ask the seller about potential seller financing, that may help lower your total capital need, and in turn how much of a down payment you’ll need to provide.