How to Finance a Construction Company Acquisition

Why Buy an Existing Construction Company?

Acquiring an established construction company offers significant advantages over starting from scratch: existing customer relationships, trained employees, established vendor accounts, proven systems, and immediate cash flow. For experienced construction professionals, buying a business can be the fastest path to ownership.

Construction companies are frequently sold when owners retire, face health issues, or simply burn out from the demands of the business. These circumstances often create motivated sellers and favorable deal terms for qualified buyers.

What Construction Companies Sell For

Construction company valuations typically range from 2-4x seller's discretionary earnings (SDE) or 3-5x EBITDA, depending on the type of work, customer concentration, and transferability of the business.

Specialty contractors with skilled workforces and recurring customers often command higher multiples. General contractors with project-based work and thinner margins typically sell at lower multiples.

SBA 7(a) Loans: The Primary Acquisition Financing Tool

SBA 7(a) loans are the most common financing method for construction company acquisitions under $5 million. These loans offer up to 90% financing with terms up to 10 years for business acquisitions.

Interest rates are typically Prime + 2.25-2.75% (currently 10-13%), with no balloon payments. The SBA guarantee reduces lender risk, making approval more accessible than conventional loans.

• Loan amounts up to $5 million
• Down payment as low as 10% (typically 10-20%)
• Terms up to 10 years for business acquisition
• Equipment can be financed separately for longer terms
• Working capital can be included in the loan

Seller Financing: A Critical Component

Most construction company acquisitions include some seller financing—typically 10-30% of the purchase price. Sellers agree to receive a portion of the payment over time, usually 3-7 years.

Seller financing serves multiple purposes: it reduces the amount of bank financing needed, demonstrates the seller's confidence in the business, and keeps the seller invested in a smooth transition.

Deal Structure Example

A typical $1 million construction company acquisition might be structured as follows:

What Lenders Evaluate

Lenders underwrite both you as the buyer and the business you're acquiring. They'll examine the business's financial history and stability, your industry experience and management capability, the debt service coverage ratio (DSCR), customer concentration and contract backlog, and equipment and asset values.

Industry experience is crucial for construction acquisitions. Lenders want to see that you understand the work, can manage crews, and have relationships in the industry. Prior ownership experience is helpful but not required.

Due Diligence Essentials

Thorough due diligence protects your investment and satisfies lender requirements. Key areas to investigate:

• Financial statements (3 years minimum, reviewed or audited preferred)
• Tax returns (verify reported income matches financials)
• Accounts receivable aging (identify collection issues)
• Work in progress and contract backlog
• Equipment condition and maintenance records
• Employee records, wages, and any union agreements
• Insurance claims history and current coverage
• Licenses, permits, and any regulatory issues
• Outstanding liens, lawsuits, or disputes

Transition Planning

A successful acquisition requires careful transition planning. Negotiate a seller transition period (typically 3-12 months) where the previous owner introduces you to customers, vendors, and key employees.

Consider structuring part of the seller's compensation as a consulting agreement during the transition. This keeps them engaged while providing you access to their expertise and relationships.

Timeline and Process

From initial discussions to closing, expect the acquisition process to take 4-6 months. The SBA loan process typically takes 45-90 days once a complete application is submitted.

• Month 1: Initial negotiations, letter of intent
• Months 2-3: Due diligence, valuation verification
• Month 3: Loan application submitted
• Months 4-5: Underwriting, appraisals, documentation
• Month 5-6: Closing, transition begins

Preparing Your Offer

Before approaching sellers or lenders, organize your personal financial statement, resume highlighting construction industry experience, proof of down payment funds, a brief business plan for the acquisition, and any relevant licenses or certifications.

Working with an SBA-experienced lender early helps you understand your buying power and structure competitive offers.

The Bottom Line

Financing a construction company acquisition is achievable with the right preparation and deal structure. The combination of SBA financing, seller notes, and your down payment can put ownership within reach even for significant purchases.

Focus on businesses where your experience adds value, structure deals that provide adequate cash flow cushion, and invest time in due diligence and transition planning. The right acquisition can accelerate your career and build lasting wealth.