Episode 25: Watch on YouTube | Listen on Spotify
A buddy of mine saw our post about a deal we'd closed, a family fun center with go-karts, batting cages, mini golf, and an arcade, and asked me the question everyone's thinking: does a place like that really make enough money to sell for that number?
Yes. By more than you'd guess. And the reason it does is the same reason a buyer with zero experience in the industry was able to finance it with an SBA loan.
This episode is a deal story, and it's a rare shape: we've now financed the same business on both ends of its life. Eight and a half years ago, inside our first year as a firm, we financed a first-time owner into this fun center. This year that same client came back to sell it. We listed the business, found the buyer, and financed the next owner in. Same team, both sides of the table, a career of deals with one client instead of one transaction. Here's how it actually worked, including the pile of nuances that would have killed it with a less connected crew and the tax nobody saw coming.
Yes, a Fun Center Really Makes That Much Money
Nobody stands in line for go-kart tokens thinking about debt service. That's exactly why people underestimate these businesses. No single customer spends much. It might be some tokens, a wristband, a round of mini golf, or snacks for the kids. But multiply a modest spend by the number of families coming through the door every single day, then add the high-margin bucket: birthday parties and events booked on top of the walk-in traffic.
The cash mechanics work in the owner's favor too. Money comes in daily; card transactions settle about two days later. The new owners closed in summer, one of the busiest stretches of the year, so from day one, cash was building up faster than the bills came due.
Here's why that matters for financing: a lender doesn't underwrite how a business looks, it underwrites what the business cash-flows. A fun center is a cash-flow machine wearing a toy store's clothes. The "does it really make that much?" reaction is exactly backwards. The boring, repeatable daily revenue is what carries the debt.
Matt, on the math people miss: "You might not be spending a lot there, but think about the number of people that go through on a daily basis spending money. It adds up."
One Client, Both Ends of the Deal
Rewind eight and a half years. We'd been open less than a year, and this was one of the earliest deals in the company. A buyer with no experience in the industry wanted to purchase the fun center. We got it done with conventional financing, which took a very large down payment and a strong additional guarantor, a family member standing behind the deal. That's what it costs to get a first-timer into a business with conventional money: you offset the experience gap with cash and credit strength.
One thing from that first round stuck with Matt: when a business with a lot of cash transactions goes up for sale, you sometimes watch the reported revenue "magically" climb three years in a row right before the listing. Sometimes the business really is taking off. Sometimes the books are just getting dressed for the date. Either way, you underwrite it with your eyes open. Knowing this business's real history is exactly the kind of thing that paid off eight and a half years later.
This year, the same client came back to sell and move on to his next venture. This time we weren't just the loan broker. We were the business broker too. We had the financials cold before a buyer ever showed up, so when the lender's underwriters came back with questions, we weren't playing telephone across a seller, a listing broker, and a loan officer who'd never spoken. Every question got answered from one desk, fast.
My take on why the structure mattered: "This deal would never have gotten done if the broker selling the business wasn't also the person who'd financed it in the past and was going to help finance it this time around too."
How a Buyer With No Experience Gets a Lender to Yes
Here's the detail that should encourage anyone who's ever thought about buying a business: both buyers of this fun center, the one eight and a half years ago and the one this year, had zero experience in the industry. Neither one had ever run anything like it. Both got financed.
This round went through an SBA 7(a) loan, the SBA's flexible program for business purchases. There was some real estate and a lot of equipment in the deal, but most of what was being bought was goodwill. Lenders call it "blue sky": the established operation, customer base, and reputation beyond the hard assets. Most lenders don't love financing blue sky, because there's no building to take back if things go wrong. The 7(a) exists for exactly this, but the cash flow and the story have to hold up.
So how does a first-timer get to yes? Two things. First, the business didn't depend on the owner. The seller had hired a strong general manager near the beginning of his ownership. That manager ran the day-to-day while the seller had little involvement in operations. For a lender, that's the whole ballgame: the person who actually runs the machine comes with the machine. The new owners can put their own spin on it without being the reason it works on day one.
Second, experience transfers. When a buyer says, "I've never run a car wash," as one did on another deal we took to the SBA, the question isn't whether they've run that exact business. It's whether what they've done in their professional life maps onto what this business needs. We dig into that with every acquisition buyer, and we're honest when it doesn't map. The goal isn't to get someone a loan; it's to not set them up for failure. Sometimes the advice is, "You're biting off more than you can chew." We'd rather say it before the purchase agreement than watch it play out after.
One more tool worth knowing: on an SBA deal the seller can stay on for up to a year after closing. You don't know what you don't know until you're standing in the middle of it. Having the person who ran the place for years a phone call away ("here's how we handled that last summer") is worth real money in that first year.
Matt, on the experience question: "Some people are overconfident. 'I can run that business, it's not hard.' You might be able to. But the lender needs to buy into that."
The Buyer's Side of the Money: A HELOC and a Cushion
The buyers' financial profile is worth a minute, because it's a blueprint for a whole category of people: those toward the later stretch of a W-2 career who are looking at buying a business as the next chapter instead of a rental property.
These buyers owned their home free and clear and carried essentially no other debt. When it came time for the down payment, the "equity injection" in SBA language, they didn't want to liquidate their stock portfolio. So they opened a HELOC (a home equity line of credit) against the paid-off house and used that. Their investments stayed put, and they got into a cash-flowing business without writing a painful check.
We also built a working-capital line of credit into the transaction. It gives them a cushion for the bumps of the first year. New owners of a seasonal business shouldn't be one slow month away from stress, and now they aren't.
The Nuance Stack: Two Leases, Owned Land, and a Gaming License
Now the part of the story that explains why deals like this die in other people's hands. Start with the real estate, because it's genuinely unusual. The buyers bought the outdoor land where the go-karts, batting cages, and mini golf live. But the indoor arcade sits in space leased from a completely different third-party landlord. And the storage buildings that hold the outdoor equipment? The seller kept that piece of real estate because it came attached to residential units he didn't want to sell yet. We put a new lease in place, with the seller as the buyers' landlord for storage. Add it up: one business, three separate real-estate relationships. Owned land, a third-party lease, and a lease from the guy who just sold you the business.
Then the license. An arcade like this is regulated as games of chance, which means a state gaming license. The license created a genuine chicken-and-egg problem with the lender.
Matt, on the bind: "The SBA lender wants the gaming license to show it's transferred over, but you can't get the license until the transaction closes. It's a chicken-and-egg. We ended up making it a post-closing condition."
There was also an EIDL loan on the business, the COVID-era disaster loan program, and anything involving the government moves on government time. One more clock to manage inside the closing timeline. This is what an asset sale of an operating business actually looks like. It wasn't fast, and it was never going to be. The work is keeping ten small problems from ever becoming the one big one. That took the whole team, with Lydia running down the license and the paperwork and Jay building the projections.
The Tax Nobody Caught
Here's the teaching moment of the episode. Late in the deal, the title company flagged something routine: they needed the personal-property tax figures to allocate correctly on the settlement statement. They called the county. The county's answer: what personal-property taxes? In all the years this business had operated, the county had never assessed personal-property tax on the equipment. Ever. That discovery could have turned into a back-tax problem at the closing table; instead, the county waived the back years and started assessing going forward. It was a reasonable outcome, but it took time the closing timeline didn't have to spare.
The bigger hit was the excise tax on the equipment transfer. In a business like this, the games, go-karts, and equipment are a huge share of what's actually being bought. The operator owns all of it outright. When that much personal property changes hands, the transfer tax is real money, and nobody, buyer or seller, had it on their radar until the end. The buyers were suddenly staring at a significantly bigger number due at closing.
It got solved the way these things get solved when someone's quarterbacking: we negotiated it between the parties, and the seller ate the excise tax to keep the buyers' cash-to-close where it needed to be and get the deal done. But the lesson stands on its own. In an asset-heavy business purchase, get the tax treatment of the equipment on the table at the start of the deal, not at the settlement table. Talk to your CPA and attorney about the specifics, because the treatment varies by state, entity, and how the sale is structured.
The Structure That Got Everybody to the Table
Two last pieces of deal mechanics are worth stealing. First, the outdoor real estate in this deal is what lenders call special-purpose property: improvements built for one specific use. You can't exactly re-tenant a go-kart track. Special-purpose real estate made the SBA's maximum financing drop from 90% to 85% on that piece, which opened a gap between what the lender would fund and what the deal needed.
The bridge was a seller carry-back. The seller carried a note for almost $50,000, a small second loan from seller to buyer that covered the difference. The seller still walked away with the bulk of his money at closing, the buyers didn't have to find more cash, and the deal balanced. One wrinkle even there: the state gaming division wanted to review the promissory note too. It didn't like how the first draft was structured, even though the SBA was fine with it, so we drafted a new one. That's the flavor of this whole transaction: nothing hard, everything particular.
Second, the lender choice was deliberate. We took this deal to one of the more demanding SBA lenders out there, a portfolio lender that keeps its loans on its own books rather than selling them off. In exchange, it offers fixed rates below the typical prime-plus-two-or-more you see on 7(a) deals. Harder underwriting, better terms. We'd never have sent a shaky file there. Because the file was built right, with the manager, projections, leases, and license plan in place, a conservative credit team said yes. The buyers walked away with better terms than they expected. If you heard our last episode on picking lenders, this is what surety over rate looks like in a live deal.
Was there fatigue? Absolutely. A long transaction with this many moving parts wears on a first-time buyer. Not buyer's remorse, buyer's fatigue. "Why am I doing this again?" The answer came about a week after closing, when Matt stopped by with his daughter. The business was humming, the manager was managing, and the new owners were happy. The transition just took.
Matt, on the lender bet: "I would never have taken it to this lender if I knew their credit team was going to say no. We set it up for success from the beginning."
Frequently Asked Questions
Can I really buy a business in an industry I've never worked in?
Yes. Both buyers of this fun center did exactly that, eight and a half years apart. What a lender needs to see is that the operation doesn't depend on you personally from day one (existing management is the strongest answer), and that your professional experience transfers to what the business actually needs from its owner. If you're running the day-to-day of a specialized operation with no relevant background, that's a harder story. If you're managing a manager, it's a very financeable one.
What is "blue sky," and can you finance it?
Blue sky (or goodwill) is the value of a business beyond its hard assets: the established operation, customer base, reputation, and systems. It's the bulk of what you're buying in most operating-business acquisitions, and it's the part lenders like least, because there's no collateral to recover if things go wrong. The SBA 7(a) program exists largely for this. It lets a lender finance a mostly-goodwill purchase based on the business's cash flow and the buyer's story rather than bricks and mortar.
What's a seller carry-back, and why would a seller agree to one?
A carry-back is a note the seller holds for part of the purchase price, effectively a small loan from seller to buyer that is paid over time. Sellers agree to it because it gets the deal closed. In this transaction, an almost-$50,000 carry-back bridged the gap after special-purpose real estate reduced the SBA's maximum financing from 90% to 85%. The seller still received the large majority of his money at closing, and carrying a small note beat losing the buyer.
What's the difference between an asset sale and an equity purchase?
In an equity purchase you buy the company itself, including stock or membership interests, with its history and liabilities attached. In an asset sale you buy the pieces: equipment, name, goodwill, and contracts. Most small-business acquisitions are asset sales because the buyer starts clean. The trade-off is more moving parts. Every asset, lease, and license has to transfer individually, and taxes on the transferred assets (like the excise tax in this deal) need to be scoped early. Ask your CPA and attorney which structure fits before you sign anything.
Can I use home equity for the down payment on an SBA deal?
Often, yes. These buyers owned their home free and clear and used a HELOC for the equity injection rather than liquidating investments. The lender will look at how the borrowed down payment affects your overall debt picture, so it works best for buyers who are otherwise lightly leveraged, as these buyers were. It's a way into a cash-flowing business without dismantling a portfolio, but run the full picture with your lender and CPA first.
Deal Room Takeaways
- Unsexy cash-flow businesses carry real debt. A fun center is small spends times big daily volume plus booked party revenue. Lenders underwrite that cash flow, not the vibe.
- No industry experience isn't a dealbreaker. Management in place plus transferable experience plus the right structure got two different first-timers financed into the same business.
- In an asset sale, scope the tax treatment of the equipment at the start of the deal. A significant transfer tax surfaced at the finish line here, and it took real negotiation to keep it from blowing up the closing.
- Small structural tools save deals. An almost-$50K seller carry-back bridged the gap when special-purpose real estate cut SBA financing from 90% to 85%.
- The harder lender can be the better lender. A portfolio SBA lender with below-market fixed rates said yes because the file was built for its credit team from day one. That's surety over rate in practice.
Thinking about buying a business, your first or your fifth? Send it over before you say yes or no. We'll tell you straight whether it cash-flows the way you think it does and what's hiding in the nuances.
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For informational and educational purposes only. This is not financial, legal, or tax advice. Loan programs, rates, and terms vary by lender and borrower profile. Confirm current terms and get advice for your specific situation before acting.