Seamless Family Succession

Background
After 30 years of building a reputable pest control business, the owner was ready to retire. His vision was to pass the business to his heir and long-time employee, who had managed both the sales and service teams for 18 years. His heir had gained a deep understanding of the business operations, built relationships with clients, and demonstrated strong leadership skills, making him an ideal successor.

The Challenge
With the business valued at $1 million, the heir faced a financial obstacle—he did not have sufficient capital to purchase the company outright.

Solution
To bridge the funding gap, we structured a financing package utilizing the Small Business Administration (SBA) 7(a) loan program. This solution provided an ideal blend of low down-payment requirements, favorable loan terms, and flexibility to facilitate the transition. Here’s how the deal was structured:

• 5% Buyer’s Investment: The heir invested 5% of the purchase price from personal savings.
• 5% Seller Financing: The seller financed 5% of the deal, reinforcing his confidence in the heir’s capability to lead and manage the company successfully.
• 90% SBA Loan: Our bank provided the remaining 90% through an SBA 7(a) loan, making the acquisition viable and minimizing the buyer’s immediate financial burden.

Implementation
The SBA 7(a) loan provided favorable terms, including a manageable interest rate and extended repayment, making it a highly accessible option. The loan application required a comprehensive assessment of the pest control business’s financials, market position, and projected cash flows to determine its ability to service the debt under new ownership.

Seller Financing
A unique aspect of this deal was the seller financing for part of the purchase. This structure allowed the seller to receive a portion of the proceeds over time, benefiting him financially while showing confidence in the heir’s capabilities. Seller financing also provided some income flexibility for the outgoing owner, as he could receive returns on his equity stake while easing the buyer’s financial transition.

Results
Through this carefully crafted financing solution, we enabled the heir to acquire the business with only a 5% down payment, which preserved his capital and allowed him to maintain a healthy cash flow for the business’s ongoing needs. The transaction’s success meant that:

• The pest control business remained in the family, preserving its 30-year legacy and long-standing relationships with customers.
• The heir assumed full ownership with minimal financial strain, allowing them to focus on growing the company rather than worrying about post close liquidity.
• The transition was seamless for employees and clients.

Conclusion
This case highlights how SBA 7(a) loans, combined with strategic seller financing, can empower generational transitions in family-owned businesses. By creating a solution that addressed both the seller’s goal of family succession and the buyer’s financial constraints, we facilitated a successful transfer that upheld the business's values and legacy.

Corey L. Townsend is a Senior Vice President, BDO Manager for Ameris Bank and provides debt financing to small businesses for acquisitions, expansion, and corporate restructuring utilizing SBA guaranteed loans.