25%, yeah. Which is significant. So often, you know, it's 10% or even less, although less so these days as, as lenders tighten up. So 25% in your idea there was that therefore the debt would be 75% loan to value, which reduces your debt payment, gives you the ability to absorb some of that cyclicality.
Acquiring Minds
SBA Deal Structuring to Manage Risk in a Cyclical Industry
Excerpts · 483 segments · ~1:44:03 long
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It just, it just makes for a more cash, healthy business, which is prudent in a cyclical business. And happily, you had the cash to do that. We'd all like to equitize our businesses a little more.
Oftentimes people do the minimum that SBA allows because they don't have more money to do it. But you, because of your amphenol stock day nest egg, could have the luxury of or had earned the ability to, to, to put some more cash toward this project.
Yes. Yeah. And I think maybe just the last element on the, the equity that was an important consideration for me was, you know, it was a, it was a meaningful chunk, but it wasn't every last dollar we had.
And we thought about, you know, well, should we minimize the amount of debt we take on by using every last dollar or should we, you know, lever up as much as we can and, you know, crush IRR if it's successful or should we try to find that happy middle ground and that, that's ultimately what we settled on.
And the reason for that is if you do get in a bad way with the lender saying, well, I put in 40% low, you know, equity, you know, like that doesn't pay the, that doesn't pay the, the payment every month. Right. Saying, well, you know, it's a lower payment, you, you've got a problem, you owe cash and that having that mitigation of being able to say that. Yeah. At least for a short period of time.
If, you know, for whatever reason. Right.
The building burns down, there's no revenue coming in that ability to say that I am not going to get myself in a bad way with the SBA because I've got at least the ability to keep making those debt payments for a short period of time that that helps, at least for me, that helps sleep at night as opposed to saying that I've got less of a total debt hanging over me or conversely, you know, I went…
You know, we're crushing it on IRR, but one hiccup and we got problems with the SBA.
Yeah, great point and let me just a couple follow up points there. Lenders will, will talk about what you're talking about basically having some personal capital after the deal. You're not using every last dollar as personal liquidity and they want many.
Increasingly, as I, as I just mentioned, lenders are tightening up as they do that. One of the other things that they look at is the borrowers, the, the entrepreneurs personal liquidity post transaction. They like to see some there for this very same reason that you just articulated.
They want to know that you buyer have some rainy day money and you're not using every last cent. I really also like the point, Andrew, about how, you know, there's, there's a spectrum here of how much liquidity you put in. I keep focusing on putting in as little as possible as kind of the, the reflex of many searchers.
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