Managing Director – Owner @ Sterling Business Capital LLC | Business Loans, Financial Services
May 23, 2026
This was one of those transactions where almost everybody involved initially said:
“This structure is never going to work.”
The buyer already owned a successful light manufacturing company with strong industry experience, operational infrastructure, and positive cash flow.
The target company was another profitable manufacturing and installation business with:
- Strong earnings • Long-term customer relationships • Significant receivables • Large accumulated inventory • Specialized operational capabilities
The buyer’s objective was ambitious:
Acquire the company with effectively no direct cash equity injection while simultaneously allowing the seller to retain an ownership interest after closing and personally guarantee the loan.
That immediately created multiple underwriting and structural complications:
- SBA equity injection concerns • Seller retained ownership issues • Personal guaranty exposure questions • Working capital disputes • Inventory valuation concerns • Aging receivables analysis • Post-closing liquidity requirements • DSCR sensitivity • Operational integration risk • Governance and control provisions
The biggest misconception in deals like this is that many people think the lender is simply underwriting historical tax return cash flow.
They are not.
The lender is underwriting what the combined business looks like the morning AFTER closing.
That distinction changes the entire discussion.
The real underwriting questions became:
- How much working capital truly needs to stay in the business? • What portion of inventory is operationally necessary versus excess? • Which receivables are fully collectible? • What operational savings occur after integration? • What does normalized post-closing EBITDA really look like? • How does retained seller ownership impact SBA guaranty requirements? • Who controls the business after closing? • What risks remain with the seller, buyer, and lender?
To make the structure workable, the transaction required extensive negotiations involving:
- Seller standby concepts • Retained seller equity structuring • Working capital true-ups • Inventory carve-out discussions • Receivable collection mechanisms • EBITDA normalization • Post-closing governance provisions • Management continuity protections • Integration planning between both companies
One of the strongest aspects of the deal was that the buyer already operated in the same industry segment.
That allowed the lender to evaluate the acquisition not simply as leverage against historical earnings — but as a strategic operational expansion with:
- Existing management infrastructure • Shared operational expertise • Purchasing synergies • Consolidation opportunities • Expanded market penetration
Complex SBA acquisitions are not simply “loan requests.”
They are engineered financial and operational transactions requiring alignment between:
- Buyer objectives • Seller protections • SBA compliance • Lender underwriting • Cash flow realities • And post-closing operational execution
That is where sophisticated transaction advisory becomes critical.
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