Zero To A Hundred – Episode 30: 0% Down Business Acquisitions? SBA Loan Strategies With Burke Purcell

Accelerators! 🚀

In this game-changing episode, Burke Purcell, CEO of Loan Bud, reveals how SBA loans can be a powerful tool to fund your business growth. Learn how you can secure zero-down financing for acquiring businesses, commercial real estate, and even selling your business to key employees. From working capital strategies to creative funding solutions, Burke breaks down the playbook for entrepreneurs ready to level up.

What’s on the Menu:

🏦 Zero percent down to acquire a business or commercial real estate.

💼 SBA loan strategies for business expansions and equipment financing.

🔑 How key employees can buy your business with 100% financing.

Why Tune In?

Burke simplifies the SBA process, sharing insider tips to help you secure capital for growth—on your terms. Whether you’re expanding, selling, or need working capital, this episode is packed with actionable advice to move the needle on your business success.

💬 Gem from Burke:

“Get capital when you don’t need it—that’s how you prepare for growth.”

Get in Touch with Burke:

📧 Visit loanbud.com or connect with Burke Purcell on LinkedIn.

Don’t miss out—hit that subscribe button and let’s take your business from zero to a hundred! 💥

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Watch the episode here

Listen to the podcast here

0% Down Business Acquisitions? SBA Loan Strategies with Burke Purcell

I am very excited to introduce our guest, Burke Purcell, who is the CEO of LoanBud. He has been in the finance industry and lending for over twenty years in residential commercial and now specializing in SBA loans, helping entrepreneurs just like you move the needle. The topics we’re going to cover are going to be awesome, as they always are.

First, we’re going to start with the basics of SBA loans because we got to get that out of the way so you understand how to do it and how to do it right. We’re going to talk about the magic number. The magic number is 0% down to acquire a new business, 0% down to acquire commercial real estate and 0% down for you, as a business owner, to sell to a key employee, all through incredible SBA lending programs that you might not be aware of.

I am the Founder of BoxFi. We are the nation’s leading payment consultant, providing business growth solutions through payment processing. I am excited to share the network I have built over my many years of entrepreneurial journey to help you grow your business and become more profitable. Ladies and gentlemen, let’s accelerate together.

Burke Purcell, thank you for joining us.

Thank you very much, Jarrod, for having me.

SBA Loan Secrets: How To Position Yourself For Success

We’re going to do a little conversation on only the lonely. Isn’t that a song? You’re the loan guy. You’re our LoanBud, pun intended. Let’s dive in and talk about how owners can use a secure working capital to grow their business. It’s a hard-hitting question and our audience is hard-hitting and they want things that can help them in their business.

Jarrod, thank you very much again for having me. I’ll answer that question from the perspective of SBA loans, which is really what my focus area is on. Something that many entrepreneurs are unaware of is the power of what SBA loans can do in terms of providing long-term growth capital. Working capital, in many instances, is only going to be given with a very short repayment term, say 12 months, 18 months in duration. SBA loans where there’s a big differentiation is they will be repaid over a period of ten years. That’s obviously going to help from a cashflow perspective. Interest rates are going to be somewhere in the 10% range, give or take, as opposed to some of the other very expensive short-term options out there.

Let’s talk about how you position yourself as a business owner to go in and present well to get approved for that loan the best terms, the best rates. What do you need to be prepared to get it closed?

The first thing is you want to have all of your financials in order and ready to go. I suggest prior to submitting a loan application, you first try to keep your credit card balances as low as possible relative to the available credit. It’s similar advice as you might take when you’re applying for a mortgage, you want to try to pull the highest possible credit score because that can have a positive impact on what you may get approved for. Have all of your business financials and orders. Last three years of tax returns, year to date, profit and loss statement, year to date balance sheet, your debt schedule, a personal financial statement. These are going to be the very bare basics of what you’ll need to apply for an SBA loan.

Most of our readers are established business owners. Is there anything critical about what they need to be presenting on their business, whether it is an actual presentation on the product or the service that they provide? How do you build the best story when you’re putting together that loan package other than the finances?

I would say the larger the loan, the more of a presentation you’re going to want to have put together. If you are looking for a loan that is $500,000 or less through the SBA, most of those loans are going to be much more streamlined. There will be less questions that you’ll have by underwriting. SBA loans are going to range anywhere from $25,000 up to $5 million for the 7(a) program. As you start getting into a seven-figure and up, the $1 million to $5 million range, there’s quite a bit of exposure on the line for banks. They’re going to ask you more challenging questions. What is your customer concentration? What is your strategy? They’re likely going to ask for a business plan even if you’re open and operational. The smaller loan requests, the $150,000 and $500,000, which are what we do the most of, are really more so, do you check all of the boxes?

My biggest piece of advice is be transparent. There are five Cs involved with credit and it certainly applies in the world of SBA and one very important C is character. If you had a bankruptcy as example or there was a blemish on your credit or you had a criminal run in, just disclose that upfront in the application because they will find it. It will come up. If it comes up in underwriting and it was undisclosed, that can be viewed as a character issue, which can be very difficult to overcome.

It actually makes sense to be very clear about your history when you’re applying for a loan because you don’t want your banker to find out something that you know is already there. Just be candid and open about it when you’re going in upfront.

It’s much easier to present it that way.

SBA Loan Decoded: Timing, Payments, And Refinancing

As we talk about the nuts and bolts, what does the timing look like? If we’re setting our expectations, how long would it take from start to finish to get approved for one of these loans?

It depends on the size of the loan. The $50,000 to $150,000 working capital loans can be processed in about 2 to 3 weeks. Those are pretty fast. $500,000 loans, I would say more like 45 days is a good expectation. More complex deals, which will be your business acquisitions, startups, commercial real estate deals and expansions would be more like the 60-day range, give or take.

Let’s say we’re going four or $500,000 loan and it’s 10 years, and we’re around 10%. What does our payment look like as a business owner?

You’re about $6,900 a month on a $500,000 loan roughly, give or take. That’s going to be based on typically the Wall Street Journal Prime, which is whatever the Fed funds rate is, plus 3% plus a margin. The typical margin we see on SBA loans is going to be in the 2.75$ or 3% range over prime. The good thing about SBA loans is that they are mostly going to be variable adjusting every quarter. We are in a declining rate environment. We don’t exactly know when and how frequently the Fed will cut rates, but it’s pretty unanimous that the rates are going down. As that happens, interest rates on SBA loans decrease according to what happens with the Fed.

Variable rates, meaning your payment actually fluctuates with where the market sits with SBA loans?

Each quarter. That’s correct. On a quarterly basis, the interest rate is going to adjust. There are some lenders out there that will offer rates that are fixed for a certain period of time, say five years as an example, which may at first sound appealing. The reality is that we are in a falling-rate environment. We’ve already seen two rate cuts by the Fed. We’ll likely see another 2 to 3 in 2025, followed by 2 to 3 in 2026. Why would you want to lock in for five years if the interest rates are probably going to fall 100 or 150 basis points in the next 18 months?

Is it difficult or are you able to refi an SBA loan like you could a home loan?

You can. That’s actually a new area that the SBA updated late in 2023, where you can refinance an SBA loan into another SBA loan. As an example, let’s say you bought a business a couple of years ago and the lender gave you an interest rate of prime plus 3%. As of now, you would be in the range of 10.75%. There are lenders out there that will price it a little more aggressively.

We work with a balance sheet lender, for example, that prices out at prime plus one and a half points. There might be an opportunity in your instance where it makes sense to refi from your 10.75% down to 9.25%. Variable, still adjusting quarterly so it continues to float with the market. You can stretch the term back out to the original 10 years, or in the case where you’re buying a business with real estate, it can be up to 25 years. You can push out the term.

Are there prepayment penalties on SBA loans?

Under fifteen years, no. Over fifteen years, these are going to be your commercial real estate-backed deals, will come with a standard declining prepayment penalty, 5% the first year, 3% the second year, and 1% in the third year.

Strategic Financing: SBA Loans Vs. Merchant Cash Advances

We’ve had conversations before about a merchant cash advance. I don’t really love them because I think a lot of them are predatory. There are some good players out there in the market, though, that really provide a helpful product. Since we’re talking to established business owners and owners, an audience whose businesses are growing, how do you establish when to get an SBA loan over a merchant service cash advance or a line of credit? How do you stack them properly so you can get to a place where you have a more secure longer-term loan?

I think it starts with how quickly you need the funds. An SBA loan is not going to give you money by Friday to make payroll. If that’s what you need the cash for, then SBA is probably not going to be the best fit for you and you may be really limited to what your options are. If you need your money fast, then it’s not going to be cheap. If you want your money cheap, then it’s not going to be fast.

You want to start by which is the most important to you? Is it speed or is it the terms that you are able to receive? There’s a time and a place for a merchant cash advance. It’s not something that we really try to offer. We’re quite defensive with merchant cash advances, but if your piece of equipment broke and you have an assembly line and your business is completely shut down and you need that equipment back to get your business up and running, that may be an appropriate time in which you need to borrow money very quickly.

For an SBA loan, even if you’re going really fast, you’re still looking at 2 to 3 weeks to get $150,000. There’s not a lot that can really be done. The benefit of lines of credit is you are going to be able to draw on those funds repeatedly. You can use access to the line of credit when you need it, just like a credit card and then you can pay it down. A lot of businesses will use that for cashflow management for shortening the amount of time when they complete a job and they have not yet gotten paid on it. You can use that line of credit to supplement that little bit of time that you have there for a gap.

If you’re a business owner and you find yourself continually going back to get a merchant cash advance or a line of credit, do you think it would be pertinent that they sit down and say, “I need these quick fixes once or twice a year. Why don’t I just put a longer-term loan in play, like an SBA loan?”

That’s really what SBA loans are. That’s what they’re there for. It’s long-term growth capital. Permanent working capital is another way that it’s referred as. What we typically suggest business owners do when they’re considering applying for an SBA loan is think about what the needs are of that business, both short-term and long-term.

Typically, we would talk about things like what your immediate hiring needs are. What are your hiring needs in the next 6 months or 12 months? What technology do you need to potentially invest in? Do you need cash for marketing? What debts do you have on your balance sheet that if consolidating those and refinancing them onto a ten-year term might make sense to improve your cashflow? It’s really looking at the overall state of the business and then coming up with a game plan to help you move forward and grow.

Audience, there is something that is very key here and this is key for any business. There are three rules that you need for your company when it comes to capital and debt. Get capital on debt, number one, when you don’t need it. Number two is get capital on debt when you don’t need it. Number three is get capital on debt when you don’t need it.

Put yourself in the position that you have that rainy day fund. It’s going to be important, especially if you’re trying to grow your business. I really didn’t think about it from a standpoint, if a piece of equipment goes down and you need that merchant cash advance in three days. Even if it’s not an SVA loan because you don’t want to be making payments on a loan that you’re not using, having a line of credit in place is really important for the success of your business so you can tap into it when you have that emergency.

It’s there for that purpose and you typically are only going to pay interest on line that you draw. You won’t pay anything. You can have a $500,000 line of credit and never use it and you’re not going to pay interest on it. Now you may have draw fees, you may have some fees to establish the line of credit, but you’re only paying interest on what you actually use.

The 7(a) Loan Program: Expand Your Business Through Acquisition

We dealt with the basics, which it’s always key that we get that out of the way. Now we’re going to talk about the fun stuff, which this is the advanced level stuff that a lot of our readers aren’t going to know about. We’re going to talk about acquiring and expanding through financing. Burke Purcell, be our loan bud, inform us, and give us a behind-the-scenes look at how business owners can acquire another business with 100% financing.

Jarrod, this is one of my favorite things to do is help businesses expand through acquisition. If you are an existing operator of a business and you’ve been running a profitable business for at least two years, business is going great and you are thinking about maybe expanding, potentially buying a competitor, you can do so without any money down. You can obtain 100% financing through the SBA up to $5 million to purchase another business that is in the same industry.

The key is it has to be in the same makes code so the exact same industry and if that all aligns and it’s a similar business in terms of size. If you’re operating a $500,000 HVAC company and you want to acquire a $5 million annual revenue HVAC company, that’s not exactly a similar scope and size. If you’re in the same ballpark, then 100% financing is absolutely attainable.

If it’s a different business that’s outside of what you’re doing now, then you can use the standard SBA business acquisition format, which is 10% down in cash by the buyer and 90% SBA financing. We do quite a bit of acquisitions with anywhere from 0% to 10% down. Sometimes, we can do 5% down if the seller holds a 5% note. There are a lot of ways that you can get really high-leverage business acquisition loans using SBA-backed financing.

Give me an example of a business that you’ve worked with where they have come in and said, “We’re looking to acquire X company. It’s similar to the company that we’re running.” How did you set them up for success to get that 100% loan?

Sure. Several examples. Just one I can think of off the top of my head, we had a flooring company we were working with in Arizona. They were doing $2.8 million in sales. They had identified another business that was a similar. It was in the flooring, same industry. This was an installation company. The other one was more of a wholesale distributor. We were able to get everything lined up in terms of the same industry.

They wanted to acquire this other business. They were doing $4 million nearly top line sales. Good profitable cash filling business, a reasonable multiple, it worked. All the numbers worked for SBA and we were able to get that done with 100% financing. I was just going to add that in the eyes of the SBA, they treat this example as an expansion. They don’t even really look at it as the true outside buyer coming in and purchasing a fresh business as if I was now going to look to maybe buy a pizza shop or a plumbing company or whatever and I wasn’t in that right now. That’s a true change of ownership acquisition. This is viewed more like an expansion in the eyes of the SBA, which qualifies for that 100% financing.

There are a couple of things that you talked about in there that I want to get clarity on and then I want you to walk us through what you need to look like on paper and present to the SBA to get approved for a loan like that. You had mentioned that you could do anywhere from 0% to 10% down. If it’s maybe a business that’s adjacent, like let’s say you are a lawn care business and you want to buy a paver business, would that apply or would you still need to be in that 5% to 10% down range?

I would really like to break it down into three different categories. The first is if you’re an existing operator and you’re buying another business in the same exact NAICS code, that’s going to be treated as an expansion and it’s eligible for 100% financing. The next category would be if you have direct experience. An example would be you are a pastry chef and you want to acquire a bakery that’s for sale. You have direct experience. For those transactions, you can typically get away with 5% down. The seller would hold a note for 5%. It would be on standby for at least 24 months. What that means is you can’t make interest during the standby period, but interest will accrue onto that note that the seller holds, and you will come in with 5% cash.

The third option would be if you have transferable experience. The person who works for IBM doing logistics for the last ten years wants to buy an ice cream truck business. You have experience we can point to as transferable. You understand logistics, you maybe understand marketing, the routes that you need to take, etc. That would be eligible for you to buy a business but you’re going to have to come in with 10%.

You can go from 0% to 5% to 10%, depending on whether it’s in the same code. What is the code you mentioned?

NAICS is the code that you’ll typically find on top of your business tax returns. That is what you’ll find there. It just has to be in the same exact industry classification.

I thought I was hearing something different and I was like, “Maybe that’s a new one that I’m not familiar with.” Trust me, there are a lot of things in this life that I don’t know, Burke. You go from 0% with the same NAICS code, 5% if you have direct experience with a 5% seller assist and then 10% if you have transferable experience. I think that could be a huge value add if you are a business that you’re looking to grow and you want to go out and acquire another business into the marketplace nowadays, that’s very low. What does the timing look like, Burke, to close a loan like this and how do you best present yourself to be qualified for a loan like this?

I would say, on average, timing would be 60 days. I will forewarn you, though, a lot of these averages has to do with the borrower, the applicant, and how quickly they’re able to respond to document requests. If a request goes in and it takes eleven days to get a simple document back then don’t try to hold the lender’s feet to the fire saying, “You told me 90 day or 60 days.” It can easily turn into 90 or 120 if parties are not all cooperating.

That said, 60 days is about average. What should you be prepared with? You’ll need to have your resume up to date. You’re going to have to highlight any relevant experience that you have. You’re also going to need to prepare a business plan and financial projections. Two-year pro forma projections, most lenders can provide you with a template. We have one as well, a generic one that we can certainly provide, and then a business plan.

There are a few options for the business plan. The SBA has a really tremendous template that they put out there. There’s a great website which is publicly available. We did a little resource guide on the LoanBud.com website as well that just spells it out and follows the same format that the SBA put forth. Those are the three ways to do it. There are also professional plan writers out there. If you really want a professional to do a deep dive with you and to do some market research to put together a plan that’s going to be acceptable in the eyes of SBA lenders, then that’s a paid service. Typically, you’re looking at about $3,000 to %5,000, depending upon the scope to get those done.

That $3,000 to $5,0000 could be money well spent, especially if you are not an expert at doing that. The fact of the matter is, is this is a low-cost way because at zero 200, there’s two things. We’re always focused on growing your business. It creates more profitability to be able to expand your business through acquisition with zero to very low percentage down could be massive to actually take your business to the next level. The fact that we know this is a Jim. Thank you. I want to move on to another zero because we love zeros, meaning it doesn’t cost us a darn thing. That is the acquisition of commercial real estate for our business with zero down. Burke enlighten us.

Commercial Real Estate: How To Acquire Property With Zero Down

I love SBA loans. I just love everything about them.

Why don’t you marry them, Burke, if you love them?

I really thought about that, Jarrod. You can acquire a piece of commercial real estate for your business to occupy with no money down. It’s one of the most powerful tools that can be utilized under the SBA-backed guarantee program. I’ll give you the real simple high-level ways that you can go about this. The first thing is your business must occupy at least 51% of the rentable square footage. The remaining space, if you don’t occupy 100%, so long as you occupy 51%, it can be leased out. You can create some additional rental income. The type of building that you acquire is pretty wide open. Anything from warehouses to office space to retail. We’ve even seen some residential-style properties. Mixed-use properties are all eligible as long as your business occupies at least 51% of the space and the loan terms are going to be 25 years.

Typically, Wall Street Journal Prime plus a margin anywhere from maybe 2% to 3% is going to be average. You’re going to be somewhere in the range of, let’s just call it 10%, roughly speaking. Variable adjust every quarter. That’s all going to fall under the SBA 7(a) program. Also, that same program allows you to build your own space. If you would like to construct from the ground up, you can purchase land or already own the land and then build commercial real estate for your business to occupy. You can do that under the SBA 7(a) program as well.

Let’s say you’re a landscape company. Could you buy a piece of land where you have all of your tools and things like that and buy a house, build a house on it where you have like an office on one side and the other side have a rental unit?

You sure can. At least if you’re building from the ground up, your business must occupy 60% of the rentable square footage. If you have 10,000 square feet, your business needs to occupy at least 6,000. The other 4,000 square feet, absolutely, you can use that to generate rental income. I helped a good friend of mine who owns a title company. He had seven locations. He wanted to open up his eighth in the panhandle of Florida.

He purchased a piece of commercial real estate. The sale price was $1.25 million. He bought this thing with no money down. He got $100,000 of working capital to get things started and to staff his office. He got a total loan of nearly $1.4 million sign and drive event cost him zero. The upstairs of this place was this mixed-use with a residential component upstairs, was an air is an Airbnb and it pays the entire SBA loan payment. The rental income that’s generated from upstairs. Not only did he buy this thing with nothing down, but he literally has the upstairs tenants pay the entire SBA loan plus taxes and insurance. You can’t make money. That’s the one thing you can’t profit off of the rental income, but you can certainly have it pay the entire SBA loan.

How long do you have to hold onto the property before you can sell it?

You can sell it whenever you want. However, the terms and provisions are such that you must always occupy it. You can’t have an SBA loan on a property that you don’t occupy. If your business moved, then you would need to refinance that or sell the building. Those are your two options.

If you’re like a furniture company, you could buy a wicked cool warehouse that’s 25,000 square feet and 15,000 square feet of that is where you store all your furniture. The other side, do like a really cool design and then turn into like three short-term rentals if it’s a market that can handle that.

You may have multiple locations. You may have 3 or 4 warehouses. You can do this over and over again. Now the 7(a) program only goes up to $5 million. That’s the cap. You can’t go over 5 million on the 7(a) program. The 504 program, which is also an SBA loan, goes considerably higher. You can go up to about $18 million with the SBA 504 program. That’s not going to be 100% financing. You’re going to be looking at 90%, which is still really high leverage. That gives you incredible flexibility for larger projects. Those deals will take a little bit longer to close and you’ll have to put something down. Those are really good for hotels, self-storage facilities, larger warehouses, things along those lines. The 504 program can also be used for ground-up construction.

Is it still 60% plus with ground up construction with the 504 that you have to occupy your business?

Correct. Your business still needs to occupy it.

Could you do self-storage with the 504 program?

Yeah.

A couple of things. You said with the 7(a) program, there’s a $5 million limit. I just want to revert back to the business expansion loans that we talked about before because I didn’t ask if there was a limit there. Is there a limit on those as well?

There is. The limit is going to be $5 million under the SBA 7(a) program. There are a couple of ways to get creative there. If you have a business partner, for example, who can take the lead on the next project or acquisition or venture, if they have 51% ownership of the next venture, then you can reset the guarantee under that person. They could now go for $5 million if they have at least 51% ownership.

In the 7(a) program, is it collectively $5 million that you can borrow or is it 5 million per property?

It is collectively 5 million under the 7(a) program, regardless of whether we’re talking real estate, business acquisitions or startup loans. You can also use the 7(a) program to start a business, get working capital. Everything that falls under the 7(a) program, you’re going to be capped at $5 million. There have been some changes that have come out. If you’re going into different industries and different NAICS codes, you can look at resetting that.

There are ways that you can get creative, but if you are a plumbing company as an example and you want to go out and buy a bunch of plumbing companies, you’re going to be capped at $5 million in total. There are some ways that you can get creative. There are some lenders out there who will do what’s called Pari-Passu loans. What that is is, it would be an SBA loan for $5 million coupled with a conventional bank loan from the same lender.

That will allow you to do some larger projects up to like the $8 million, $10 million range and there’s only a handful. We work with all of them. There’s about 6 or 8 of these lenders out there in the United States that will consider doing both the SBA first and a conventional bank second. Those are called Pari-Passu loans. Those can be helpful for larger commercial real estate deals when we don’t want to go 504 or they can also be better suited for larger lower middle market acquisitions.

When you said with the 504 program, up to $18 million on its 90% financing, you mentioned hotel and self-storage. If you’re a multifamily real estate developer, could you buy a rental building?

Unfortunately, no, not with the SBA program. The spirit of the SBA program is to support owner-occupied businesses. It needs to be an active business, not a passive real estate venture. Multifamily is ineligible. Hotels are eligible. RV parks can be eligible. Self-storage facilities are eligible. Just pure multifamily, pure real estate plays where you have long-term tenants that average more than 30 days is not going to work for SBA.

You just gave us two really good tactics. One for acquisition of a business. The other one is for acquisition of commercial real estate that is owner-occupied. Now I want to talk about if you decide that you wanted to exit your business. You have a well-established business like many of the owner operators do, who are our audience and they might want to sell to one of their employees. Walk us through what unique programs are out there for them to be able to sell to one of those employees.

Sell Your Business To A Key Employee: The SBA Advantage

The SBA really loves when you sell your business to a key employee. SBA lenders, in particular, are really keen on this. I want to back up a step and just give some context here, Jarrod, because in the United States, you’ve got roughly 33 million small businesses. There are some studies out there that suggest that as little as 30% of these small businesses have an actual exit plan in place.

There’s this very large portion of small business owners that don’t truly have a succession or exit plan. They may know or think or believe that they would like to sell their business in maybe 3 or 5 years. They have a timeframe in mind, but they don’t know to whom. If they don’t have family that’s interested in it, then what do you do?

What most people would do in the traditional sense is when you’re ready to sell, you would contact a business broker. They’re going to list your business for sale, much like you would list a piece of real estate for sale, and for doing so, they’re going to typically charge you 10% of the sale price as a commission. It could be quite expensive.

The process of selling a business is not an easy one. It’s quite intrusive. You have legal teams, due diligence teams that are poking at you and your business and asking a bunch of questions throughout the process. It really is not a great experience for most sellers who are trying to exit a business that they spent so many years building.

Using the SBA program to sell to a key employee has so many benefits. The first is that the key employee can purchase your business with 100% financing. The way this works is, as the seller, you will be required to hold a note of 10% of the sales price. Let’s say, Jarrod, you want to sell your business for $1 million. You have a key employee you want to sell it to, you’re going to hold a note for $100,000. That note will be on standby for 24 months. What that means is that the buyer of your business is not able to make payments during 24 months. There’s going to be an interest rate, whatever that is, that’s between you and the buyer.

When you say they’re not able to make payments, you mean they’re not able to make payments to you, the seller?

That is correct. Interest will accrue during the standby period. Twenty-four months of standby. Let’s say you say you say to your key employee, “I’ll sell you this business, I’m going to hold a note for $100,000, 8% interest, and that’ll just accrue for the first two years. No payments to you.” After a couple of years, it’s $116,000 or whatever it is at that point. The remaining 90% of the deal is financed by the SBA lender. The key employee, the operations manager, the general manager, etc., is able to purchase this business with 100% leverage between the 90% SBA loan and the 10% seller held note on standby.

What’s really amazing about these transactions is that our SBA lenders are telling us now that they would rather see a transaction with a key employee buying a business with no money out of their pockets, zero skin in the game with credit scores that really don’t matter. It could be any credit score collateral not required, you don’t have to own a house, and zero post-closing liquidity requirements. For traditional business acquisitions, the lender’s going to want to see that you have some cash stored up.

Our lenders are telling us they would rather see those transactions where it’s an internal sale, essentially a key management buyout, rather than an outside buyer coming in with 10% or even 20% of their own cash. That risk associated with the outside person coming in who doesn’t know the business, who doesn’t have the relationship, and who doesn’t understand the systems is really much greater. Selling to an employee with an SBA loan is a really amazing way for a business owner to sell to someone that they know, that they trust, who they believe will uphold their legacy. You can save the 10% fee that a business broker would otherwise charge you.

Okay, so riddle me this. Could one assume that they could actually get a higher sales price by selling to someone internally versus an outside buyer?

I normally see it the other way. I normally see it where someone would sell it at a slight discount to Joe, Susie, or whomever that’s been building sweat equity in this business for the last twelve years. I typically don’t see sellers want to get more. If anything, they’re comfortable taking a little bit less. At the end of the day, the transaction must be supported by a business valuation. The business has to be worth what you would like to sell the business for.

There are ways you can make up for that. You can hold a little more of a seller note if the valuation comes in a little bit short and still accomplish 100% financing. I don’t really look at this as a way where you can get more money for the sale. I do look at it as a way where you can have an easier, more streamlined transaction where you feel confident that the person taking over your baby, which is what businesses are, is going to do the right thing and will uphold your legacy. You know their values; they have relationships in place already with clients and vendors, and it really just makes for a more seamless transition.

You touched on something that was very important, the fact that credit worthiness is less important. You don’t necessarily have to own a home or have a large amount of post-closing liquidity when you’re doing this type of loan as a key employee loan. I believe that’s what you referred it to it as the credit worthiness owning a home and post-closing liquidity, do they come into play for a 7(a) or a 504 loan?

Most certainly.

Those are all key things and I neglected to ask you that. That’s something the audience should key into. If you want to qualify for these 0% or low percentage down loans to acquire real estate or acquire a company, you have to be creditworthy, have some type of real estate that is your personal real estate that you own, as well as have some post-closing liquidity.

The 819 Strategy: A Partial Sale With No Personal Guarantee

I just want to add one thing, Jarrod, to the selling of the business. Something happened late 2023 when the SBA updated their SOP where they now will allow for partial sales of businesses. It used to be, for the last 60 years, that when you sell a business, there has to be a full complete transfer of ownership if you’re using SBA financing. Now, that’s no longer the case. Some business owners are not quite ready to fully hang up the cleats proverbially. They may want to just sell maybe half of their business or maybe 80% of their business, maybe 90% of their business. They want to hold on to 10%, 15%, 19% of their business. Keep a salary, keep a little bit of a feeling that you’re still doing something, have a feeling of worth, and share in the profits. There’s something that, that we call the 8119 strategy.

We see this quite a bit where the seller will retain 19% equity by doing so, they do not need to be guarantors on the new loan. Let’s go back to that same example. You’ve got a million-dollar business you wish to sell to a key employee or it doesn’t have to be an employee. You can sell it outside also if you wanted to. Let’s say you want to sell off 81% of it, retain 19%, but you don’t have to be a personal guarantor at this point. You sell it for $810,000.

Do you have to personally guarantee it if it’s less than, if it’s they’re holding the 10%? Are you personally, as the seller, guaranteeing that 90% loan?

SBA loans require that any guarantors post transaction that have at least 20% equity must be guarantors on the personal guarantors on the loan. If you retain 20% of your own business or even 30%, anything 20% or greater, then you’re now on the hook. If you retain less than 20%, it could be 19%, then in that same instance, you sold 81% of your $1 million business. You just got a fat check for $810,000, and you retain 19% ownership of your company with no personal guarantee. If the business goes South, not that you’re rooting for that, but five years from now if the business goes South, you already got your $810,000 out and you’re not on the hook for the loan.

I just want to make sure I’m clear for the audience because I didn’t want to confuse anything with the question that I asked, but it only is if you own more than 20%, you have to be a guarantor on the loan. If you hold back 10% or you’re holding a note for 10%, you’re not signing on the loan. I just want to be very clear with that. Is there a limit to the loan amount for these key employee sales?

$5 million under the SBA 7(a) program. These would all be SBA 7(a) loans. The limit’s going to be $5 million. Now, we can still do the Pari-Passu structure if it’s a really strong deal. $7 million transaction, $6.5 million transactions, we can potentially do that same setup where it’s a $5 million SBA loan, a little bit of conventional money in there and the seller holding some paper you can get up to that a little bit above $5 million at that point.

Avoiding Mistakes: How To Get Your SBA Loan Approved

Before we go to our rapid-fire session, I have one last question. A lot of business owners get a little nervous when it comes to applying for a loan because they don’t really know how to approach it. How do you avoid the common mistakes that you see in the marketplace when someone goes to apply for a loan and gets turned down so they’re set up for success the moment they walk through the door?

I think it starts with organization being ready. If you’re going to apply for a loan, whether it’s a business loan, a home loan, an auto loan, have all of your documentation ready. Understand what your FICO score is. Understand what your request is. With SBA lending in particular, you don’t just want to say, “I need $1 million.” They say, “What is that for?” It’s like, “I don’t know. I just want as much as I can get qualified for.” That’s probably the worst thing you can say to a lender.

You really want to understand the intended use of funds and have a breakdown. Have a little bit of a summary. A two-paragraph summary to provide to a lender or to a broker, whomever you’re working with, is really helpful just to set forth what you’re looking to accomplish. Have everything organized. Your credit card balance is paid down. Don’t go out and apply for a bunch of credit before.

Even equally as important, I would say, is that once you start the application process, please do not change anything with your financial picture. Don’t go out and open up a business line of credit or take out a cash advance or run up your credit card debts. You really want to just hold even until the loan is closed and funded and then you may go out and do whatever you please.

Rapid Fire: Business, Zombies, And Gladiators

Alright, Burke, are you ready for the rapid-fire?

I’m ready.

Who wins the race? The rabbit or the turtle?

The rabbit.

Burke, I’m really disappointed in you. I was expecting you to say the turtle, and I know this is supposed to be rapid-fire, but I’ve learned the more I rush shit, pardon my language, it just never works out. I’ve slowed down and things have started to work out anyway.

I know it’s rapid-fire, but still, I gave you my honest answers. I’m the CEO and founder of a high-growth startup, and you have to be fast. The tortoise loses the race, especially with the advancement of technology. What you have on your side of speed. I would rather be fast and learn my mistakes ten times before the tortoise is trucking along. My answer remains the rabbit.

One of my favorite people, I’ve actually taken on this motto, Peter Swain, says, “Move fast and break shit.” I really love that, and I have incorporated that in certain aspects of my business, but it’s typically backed, to your point, by AI and technology, which are supporting me in doing it. Maybe I need to change my mentality. Sorry, next question. It is a zombie apocalypse. You have to get out of your home and protect your family. What is your weapon of choice?

A gun.

Favorite business quote or phrase?

It’s a phrase by Warren Buffett. He says, “If you want to fix the federal budget, let Congress and political members know that they won’t come back next year if they don’t fix it. That’s a real fast way to fix a deficit.” You just tell them, ‘You can’t go back for another term unless you fix it.” He said, “Watch how fast you’re going to have a balanced budget.”

I think that’s probably a really good suggestion in the country. Favorite movie or streaming series?

I got to say Gladiator right now, only because I’m so excited for Gladiator 2 and I’ve just been watching some clips of the original Gladiator. I’m going there right now.

Dead or alive, if you had the opportunity to have dinner with someone this evening, who would that person be?

Barack Obama. Just such an incredibly well-spoken, engaging person who I think would be a fantastic conversation around a dinner table.

Let’s say you are a small business and you’re doing $10 million in gross revenue and I walk through your door and I hand you, the business owner, a $300,000 check, how would you suggest that that business owner invest that $300,000 in their business to grow their profits?

I would need a lot more information before I can make that suggestion, but some areas I would say typically what we see is investing into people. Hiring more people will normally yield the best results. That, and depending on the business, technology, I would say.

Last but not least, give me two people in your life who have helped you get to the point of where you are and build the success that you have in your business.

I’m going to have to say my wife. She is my rock. You know Maya. Without her as my backbone, I would not be here now. She is my first and my second choice.

Burke Purcell. Please tell everyone where they can connect with you.

You can find me on LoanBud.com and through my LinkedIn as well. It’s Burke Purcell. I really appreciate you having me on here, Jarrod.

Burke, thank you for joining us.

Thank you.

Important Links

• LoanBud
• Burke Purcell – LinkedIn
• LoanBud – LinkedIn

About Burke Purcell

Burke began his lending career over 20 years ago. From residential to commercial loans, Burke built his reputation on finding creative solutions for his clients. LoanBud was a vision many years in the making: the chance to create a marketplace flexible enough to fit every entrepreneur’s capital needs. Burke’s industry tenure and track record have helped him attract top talent and assemble a network of over 100 lenders for LoanBud to utilize.