Category: Buyout and LBO Financing

Investment Banking Myths and Small Business Buyers

One of the reasons I stuck with small business buying is that big business buying didn’t make a lot of sense to me. First of all there is competition and the competition comes from big money players in private equity. So these guys are at the top of the food chain and ever since the 1990’s they have grown in numbers like rabbits. So there is more institutional money available to chase deals. They chase deals that are big… usually. Lately they reach down to our level but that won’t get them the return they need.

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Non-Recourse v Recourse Financing

Typically a non-recourse loan is one in which the lender looks to the company to pay the loan and cannot go back to collect from the principal. Recourse financing is one in which they can go back and collect from the principal(s). Thus the lenders may have “recourse” to go against whoever guaranteed the loan which is generally one or more of the principals of the company. This concept of recourse is what we call a “personal guarantee”.

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