SBA Loans for Buying a Sawmill or Lumber Yard: The Real Path

Why SBA 7(a) Is the Default Mill Loan

Most sawmill and lumber yard sales under five million dollars close with an SBA 7(a) loan. The structure fits the industry: ten percent down in most cases, ten-year amortization on goodwill and equipment, twenty-five years where real estate is included, and no balloon waiting for you in year five.

For a business with steady cash flow, which well-run mills have, the debt service coverage math usually works. A mill throwing off three hundred thousand in owner benefit can typically support around a two million dollar acquisition at current rates.

What the Bank Actually Wants

Three things. First, cash flow that covers debt service with margin: they want to see a debt service coverage ratio above 1.25x on the historical numbers, not the pro forma. Second, the buyer's skin in the game and resume: industry experience counts heavily in this trade, and lenders who have burned on mills look for operators, not investors. Third, collateral: equipment appraisals, inventory, and real estate carry the loan. Logging contracts and timber supply agreements help the story even when they cannot be collateralized.

The Deal-Killers

Unreported cash sales kill more mill acquisitions than anything else. If the tax returns show four hundred thousand in revenue and the seller talks about six hundred, the bank lends on four hundred, and the deal dies on valuation. Second killer: environmental questions on the yard, old fuel drums, creosote history, unclear soil. Get the Phase I done early. Third: seller dependence. If the business evaporates when the owner walks, there is no business to lend against. Ask for a transition period in the purchase agreement, paid, structured, minimum ninety days.