The sale of most businesses require the use of some third party finance.
Private lenders are available but often have very exact lending requirements, slow in making final lending decisions and have interest rates that are not competitive. Finance from a third-party lender such as a bank that provides SBA loans are an important part of many transactions.
The Small Business Administration co-ordinates the SBA loan program. This program is essentially a program to encourage and help new entrepreneurs by providing access to capital to buy or start a business supported by the US government and ultimately the US taxpayer. Its important to understand that the Small Business Administration does not process or approve any loans. This is done by the national, regional and local lenders. Additionally, the Small Business Administration has an extensive set of rules about lenders must follow to process and approve an SBA loan. These lenders have their credit underwriting procedures and processes. It typically takes an absolute minimum of 45 days to process, approve and fund an SBA loan with 60 days more typical.
Sellers
Most business owners when selling their business do not want to carry any finance. There may be tax benefits to the seller if they are willing to carry seller finance plus it speeds up the process to sell the business.
When they understand the tax benefits, they may be willing to carry as seller finance, a small part of the purchase price.
READ MORE: Seller benefits of carrying a Sellers Note.
READ MORE: Here is more information about the benefits to a seller of an SBA loan.
Buyers
Most buyers of a business do not want to pay all cash for the purchase of their business as they miss out on the ability to lower the amount of tax they pay each year. To buy a business, the buyer will need to bring cash as the downpayment to buy a business. The amount varies but is typically between 15%-20% of the business purchase price. Plus the buyer needs to remember they will need to have working capital to initial run the business so its important to calculate the amount of working capital that is necessary.
READ MORE: Here is more information about the benefits to a buyer of an SBA loan.
If you are looking to buy a business or buy a franchise, the quality of your credit is a critical factor whether you will qualify for a loan.
READ MORE: Here is more information about how to get a free copy of your Credit Report.
Options
There are many third-party lenders to approach for a loan. My personal process is to approach lenders to see if they would be willing to lend before the business is for sale. My goal is to get the business pre-approved so if a qualified buyer wants to buy the business and meets the lenders criteria it is possible to more quickly and easily close the sale.
Different lenders for different business/practices
Each lender takes a different approach to the complex process of approving a loan. Some of the criteria includes:
- Geographic location.
- Type of industry.
- How long the business has been in existence.
- Amount the seller is willing to carry as seller finance
- Buyer down payment.
- Buyer industry experience.
- Buyer credit score and more.
To increase the chances of success of the sale of a business, I work with local, regional, national and industry specific lenders.
Questions or more information?
If you are looking for third-party finance such as an SBA loan, give me a call on 916 570-2674 or click this link for us to contact you. We work with local, regional and national lenders that work in different industries and specialties so we can find the right lender for you.