Thought Leadership

A Path to Ownership

For Perfection Heating and Air Conditioning, the right vehicle was an SBA loan

Jordan Hopkins always dreamt of owning his own company. In June 2017, that dream became a reality when he purchased his employer of the past 13 years — Perfection Heating & Air Conditioning, Inc. — a Maplewood-based heating, ventilation and air conditioning (HVAC) business. Hopkins bought the company with the help of a Small Business Administration (SBA) 7(a) loan.
 
Guaranteed by the federal agency, an SBA loan offers low-interest rates, as well as more flexible terms than a traditional loan.

The Purchase
Hopkins chose the SBA loan after consulting with John Thwing, a senior SBA business lending officer at Anchor Bank, a division of Old National Bank. For the past 15 years of his nearly 30-year banking career, Thwing has focused solely on SBA loans, earning him the pseudonym “The SBA Guy.”

Thwing says that when securing a loan, many people go straight to discussing the financing, but he counsels buyers and sellers to look at the fundamental health of the company first, including its sales trends, profitability and cash flow.

“When you go to the mechanic and ask the mechanic to fix your car, you describe what’s wrong. You don’t tell the mechanic which tools will fix it,” says Thwing. “Always upfront, people want to talk about the loans. I say ‘Wait a minute. That’s the tool. I need to know what we’re trying to fix.’ ”

Unlike most business loans, one of the primary assets of an SBA loan used to purchase a business is goodwill, which is intangible  and has no collateral value. So, for example, if someone is paying a million dollars for a company that only has $100,000 worth of assets, that additional $900,000 is  essentially goodwill in the business’s established market share and current client base.

“For me, goodwill is a normal thing to finance,” says Thwing. “But for most lenders, it’s not. An SBA loan tends to help the bank agree to lending when there’s very little collateral and there is a lot of goodwill.”

The Partners
Hopkins had worked at Perfection Heating for more than a decade and had known the owner for more than two. Not only did Hopkins have a great partner to work with in his former employer, but he also had an SBA expert on his side in Thwing. Just like anything, more times than not, when you’re dealing with an expert, you’re going to have a better experience.

“If an SBA loan is a right fit for the situation, you should be partnering with an SBA professional,” Thwing says. “They’re likely to tell you if it’s not a fit and may give you different or better choices to fund the transaction.”

The Process
In these kinds of transactions, the buyer typically needs working capital to help fund the business that is not part of the original purchase price. Thwing helped Hopkins think through obtaining purchase money and working capital as part of the funding package from the bank by building it into a long-term SBA loan.

Thwing tells clients to plan for 60 days from the signed purchase to the closing. That schedule can be shorter for highly motivated parties or longer for more complex circumstances.

“The one thing I like to remind people is that closing is a shared responsibility,” Thwing says. “In other words, it’s not just the bank.
Everyone has to do his or her part. Closing only moves as fast as the weakest link.”

For Hopkins, the entire process took approximately six months from his initial inquiry to final closing. “The process was remarkably smooth. It went much easier than I expected,” says Hopkins. Six months into his new purchase, Hopkins notes it’s been a learning experience, but was absolutely the right move for him.

“Thanks to the economy and market, it’s just exploded. Our workload is way up,” Hopkins says. “I’ve substantially beat every single month of sales since I purchased the business.”