Private Capital vs. SBA Loans: Choosing the Right Path

Introduction

When buying a business, one of the first questions buyers face is: Should I pursue SBA financing or private capital? Each option has advantages, risks, and deal-size sweet spots. This guide helps you decide which is best for your acquisition.

SBA Loans: The Basics

• Best For: Acquisitions under $5M.
• Down Payment: 10–20%.
• Repayment Terms: 10 years for goodwill, 25 for real estate.
• Rates: Prime + 2–3%.
• Advantages: Affordable, government-backed, flexible.
• Challenges: Slow approval, heavy documentation, strict borrower requirements.

Private Capital: The Basics

• Best For: Acquisitions $5M–$250M+.
• Providers: Family offices, private credit funds, mezzanine lenders, equity co-investors.
• Repayment Terms: Flexible, often shorter than SBA.
• Rates: Higher than SBA but more customizable.
• Advantages: Speed, flexibility, ability to fund complex structures.
• Challenges: Higher cost of capital, may require equity dilution.

Key Comparison Factors

1. Deal Size: SBA caps at $5M, private capital has no upper limit.
2. Speed: Private capital can close in 30 days, SBA takes 60–90+.
3. Flexibility: SBA has rules; private lenders negotiate.
4. Cost: SBA is cheaper, private capital is more expensive but creative.
5. Borrower Profile: SBA cares about credit and personal guarantees; private lenders care about deal strength and returns.

When to Choose SBA

• First-time buyer acquiring <$5M business.
• Business with steady, verifiable cash flow.
• Buyer with solid credit and management experience.

When to Choose Private Capital

• Deal size exceeds SBA thresholds.
• Complex roll-up strategies or multi-entity acquisitions.
• Buyer needs speed or flexible structuring.
• Equity sponsors seeking leverage.

Hybrid Structures

Many acquisitions use both — SBA or senior debt paired with mezzanine or seller notes. Yaw Capital specializes in blending structures.

Conclusion

There’s no one-size-fits-all. SBA offers affordability, while private capital offers scale and speed. The right choice depends on deal size, complexity, and buyer profile.