Business Management Experience

Business experience is critical when you are using bank financing to buy a business.
There are two primary areas of business experience a lender is looking for:

Direct Industry Management Experience

This type of experience is defined as having at least five years of business management experience in the exact same industry you are looking to buy a business. If you this is your level of expertise you will rate “very strong” in this category. Let’s consider the following example:

• This applicant is looking to acquire an existing HVAC business for $3,950,000 which generates approximately $925,000 in cash flow to the owner annually.

• An applicant has been in the HVAC industry for the last 11 years and has held progressive roles. They are currently in a general manager role and have the following responsibilities:

o Leadership

o Employee Management and/or Managing Managers

o Profit & Loss Responsibility

o Operations Oversight

o Strategy & Development

• Prior to their HVAC experience, they held sales management and operational roles.

This applicant would qualify easily as having direct industry management experience and would be rated as very strong by an underwriter. They clearly know the industry and have all the requisite skills to take over this business. It is going to be easy for a SBA lender to get comfortable with their experience.

There is a different type of experience an applicant can have which isn’t exactly direct industry management experience, but rates just as strong.

• If an applicant has previously owned and operated a small business – industry experience doesn’t usually matter as much and this applicant will be rated as very strong. For example, I worked with a client who owned and operated a profitable Gas Station/Convenience store for several years. After selling it, they acquired a Custom Cabinet Contracting business for $2,300,000 which generated $650,000 in cash flow. While there experience was not from this particular industry, their previous experience would rate them as strong in this category.

Transferable Business Management Experience

This type of experience is defined as having a general business management background. For example, you may not have run a company before, but you have had Operational management experience or were tasked with profit & loss responsibility. For example, let’s say you led a sales team (employee management), were tasked with all expenses incurred by the division (P&L responsibility), and were directly responsible to help grow the division from $5M in revenue to $40M in revenue. You would then be able to qualify for financing under the transferable business management experience requirement.

If you meet this definition above, then you would be considered as “Adequate” under this category with respect to your ability to obtain financing.

If you do not have business management experience, you are still eligible. Here are a few ideas you can pursue to offset the experience requirement:

Look for an existing franchise for sale. This way you can leverage the franchise system and substitute that for the experience requirement.
Look for a business partner that does have the experience and is willing to be on the loan.
Look for a business that does not require an extensive management or business background. For example, there are several E-commerce businesses for sale with one owner and no employees. If you can make the case of how the experience you do have transfers to this business, and you are strong in all of the categories except for business management – you definitely have a shot at obtaining financing.

SBA 7a Loan Expert

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