Case Study: A Search Fund Buys A Healthcare And Insurance SaaS Company With An SBA Loan

Software businesses have few hard assets, so the loan is backed almost entirely by cash flow and goodwill. Lenders focus on recurring revenue, customer retention and whether the product and the team will carry on under a new owner.

Search fund deals add another layer: investors, the searcher’s ownership, guarantees and investor returns all have to fit SBA’s rules before a lender can approve the loan.

The equity came from the search fund’s investors, alongside a seller note on standby. On an SBA loan, investor-backed structures follow specific rules. Anyone who owns 20% or more of the buyer, usually including the searcher, gives an unlimited personal guarantee. Investors under 20% with no control are not required to guarantee, but under SOP 50 10 8.1 their money is a limited Down Payment source, and if it is used for the Down Payment they cannot receive non-tax distributions until the SBA loan is repaid. Lenders also review the investor terms, including preferred returns and anything paid on a sale.

As on every deal, we built one loan package for the buyer, with the financials, the business plan and the projections lenders ask for, and took it to the SBA lenders in our network of 50+ whose credit policies fit a software acquisition of this size in Missouri. Lenders that fit compete for the deal, and the buyer chooses the offer.

This loan was funded by a lender that ranks among the top 10 SBA lenders. We keep lender names private for our borrowers and lending partners; the label shows the kind of bank that said yes.