• Overview of Live Oak Bank
  • The Nitty-Gritty of Financing an Acquisition
  • Things to Know Before Acquiring a Firm 

Connect with Shannon Hay

Meet with Shannon Hay

Shannon Hay is the vice president of lending for accounting and tax professionals nationwide at Live Oak Bank. We got connected with Shannon through Gretl Siler, a Growing Your Firm Podcast guest who is a pro at acquiring accounting firms and uses Live Oak Bank to finance her purchases. 

Today, he is joining the podcast to talk about the best practices for financing when acquiring a firm. 

Overview of Live Oak Bank

Live Oak Bank focuses on industry-specific lending and is the largest lender in the country for SBA and lately, they have been using the expansion lift model. 

Shannon specializes in loans for accounting, tax, bookkeeping, and other similar businesses. Right now, Live Oak Bank is growing vertical so there is a lot more added volume, meaning loan sizes are increasing over time. Today, on average, loans are about $1 million and are still trending upward with the help of the SBA program. 

The SBA program has been around for a while but is seeing an uptick since the start of the pandemic. It’s typically used for goodwill-type acquisitions with a limited amount of collateral and a third party will come in and establish value to determine the amount of the loan. Live Oak Bank will lend up to 100% of the purchase price if deals are right and expansion is good. 

32 Free Accounting Workflow Templates & Checklists

Subscribe to our weekly newsletter, and get 32 free accounting workflow templates today!​​

sign me up!

The Nitty-Gritty of Financing an Acquisition

To get the full 100%-of-purchase loan, you typically need to be a large firm buying a smaller firm and not a first-time buyer. The 100% will also only come after both firms have been evaluated.

Once you’ve received approval for the loan, you’ll need to make a down payment. Down payments require a 10% equity injection and come in the form of:

  • Cash
  • Equity in the existing firm
  • A gift
  • Lean into seller for up to 5% as long as the seller is put on full standby with an SBA loan

Recently, seller assists have decreased and cooperative transition models have become more common. 

How to get a loan: 

You’ll first have to start with a letter of intent to help Live Oak Bank understand the purchase price. From there it will be valued and a loan will be given up to the amount of the valuation amount. Usually, firms will then leverage their existing firm into the new one to help with financing. With this approach, they could technically finance the loan with no money down, however, more often than not, there will be a “good-faith” deposit – it’s a matter of preference. 

As far as repayment options go, the SBA is set at a 10-year term with a single-digit rate, never over 6%. The rate is dependent on the risk, so a lower risk means a lower rate. There is no prepayment and borrowers will need to factor in the closing costs, legal costs, and cost of evaluations. The SBA also includes a 3% fee, however, all of these additional costs can be factored into the cost of the loan.

Things to Know Before Acquiring a Firm

Quick tip from David: Don’t break what you buy, after acquiring the firm, you should have enough cash flow to cover the cost without changing a thing in the merger

Shannon agreed and added the importance of not changing the front office. The front office is the face of your firm and you will benefit much more from changing the back office. 

He also mentioned that the SBA has the lowest interest rate and is the fastest way to get a loan, however, depending on the way your business is structured, you may benefit from taking a different approach. 

If you are interested in acquiring a firm, be sure the opportunity is there and you’ve studied the market. Currently, the marketing is trending towards fully remote firms, so that is a great place to start. 

Even in the wake of the pandemic, business for Shannon has been busier than ever. There are plenty of buyers and sellers and he is beginning to notice that structure drives value. 

Note: Check out this podcast for more about covid’s impact on accounting firm acquisitions!

Shannon went into more detail about the nitty-gritty of financing an accounting firm acquisition and important things to know before making the purchase in the podcast, so be sure to listen to the full episode above!

See Jetpack Worflow In Action

Get under the hood of Jetpack Workflow’s accounting workflow and project management platform. See some of the top features and how it helps your firm standardize, automate, and track client work more efficiently.