SBA Loan Business Buyer Benefits

The SBA loan program is essentially a program to encourage and help new entrepreneurs by providing access to capital to buy or start a business.  The SBA or Small Business Administration is a Federal government agency.  It is their responsibility to oversee and administer the loans of banks and lenders that which wish to approve and provide finance to approve and process these SBA loans.

If you are looking to buy a business or franchise it provides some great benefits.  These include:

1. Small business loans for a business buyer to help finance the purchase of an existing business with a positive cash flow and a  track record of being successful in business.
2. An SBA lender requires a business or franchise buyer to bring a down-payment to have “skin in the game” but they can leverage this down-payment to get a loan which allows them to buy a business at a higher value and with a higher cash flow.
3. There are costs to to the borrower to get an SBA loan. Under most circumstances those costs can be rolled in to the loan.
4. If a buyer is able to qualify for an SBA loan, they can negotiate more aggressively with the seller because they can offer most if not all cash up front to the seller, thereby reducing the sellers’ risk of not being paid.

Who is the SBA?

The SBA or Small Business Administration was an Act of Congress that saw it come to life in 1953. Since that time it has delivered millions of loans, loan guarantees, contracts, counselling to business owners and buyers and more. Part of its charter is to offer help to small businesses with access to capital or business financing, education, information and technical help training and assistance with government contracting (help to small businesses with federal procurement.)

How do I know if I qualify for an SBA loan?

If you plan to buy a business or franchise there is great value to see if you can qualify for an SBA loan. One of the steps I help as your business broker is to understand the business or franchise you would like to buy, then introduce you to a few SBA lenders to see if they would be willing to give you a Prequalification Letter; all for free. A Prequalification Letter does not mean you are approved for an SBA loan, but it does mean when you present an offer to buy a business or franchise and you have a Prequalification letter and another buyer does not, your chances are much greater of having the seller accept your offer.

The four steps to qualify for a loan?

To qualify for a loan there are four steps to take. Being pre-qualified for a loan does not mean your loan is approved. It does mean an SBA lender has reviewed you and your financial history and written a prequalification letter to support any offer you make for a business. You will now be able to negotiate with the seller from a better position and have a much greater chance of being able to close the deal and become a business owner.

The four steps to take are as follows:

1. Complete a Personal Financial Statement. Click this link if you would like to download a sample SBA Personal Financial Statement.
2. Review your credit. Different lenders have a different process. Some lenders will allow you to download and provide your own credit report. These lenders understand that having a lot of activity against your credit report is not good and so will work with you. Other lenders wish to get your authorization so they can run the report themselves.
3. Provide a current bank statement showing you have the downpayment available.
4. Provide a current copy of your resume. This step is critical if you plan to get an SBA loan because the lender wants to see you have experience in the industry of the business you are buying. Additionally, if you have management experience, make sure to detail this clearly including the job description, how many direct employees were reporting to you and over what period of time. The number one reason SBA borrowers are not successful is because they don’t have business management experience.

FAQ for SBA loan business buyer benefits

Here are some common Frequently Asked Questions or FAQs from borrowers over the years when working with me to buy an SBA loan for a business or franchise.  If you have questions, need more information or looking for an SBA loan, you are welcome to email me at info@RogersonBusinessServices.com. Otherwise, give me a call on (916) 570-2674. If your question is not here, email it to me and I will respond as soon as I can.

Where do I apply for an SBA loan?

An SBA loan is not something you apply to the SBA for approval. That is the SBA is a government agency and its responsibility is to carry out the rules of the SBA loan program; which are incredibly detailed. Additionally, the SBA reports to the US Congress who annually approve how much money they will provide the SBA to guarantee the loans written by the banks that underwrite and approve the loans. That is, as a borrower, you will make your SBA loan application to a bank, credit union or financial institution who have been approved to process an SBA loan application.

Does it matter which bank, credit union or financial institution I should make my application?

The first thing to ask your bank, credit union or financial institution is if they process and handle SBA loans. IF their answer is yes, your second question is to ask if they are a PLP or part of the Preferred Lender Program. A lender that is a PLP has the authority from the SBA to process their loan applications internally. If the lender is not a PLP it means they have to take your application and then send it to the SBA or one of its Regional offices for processing. This then will slow down the loan approval process.

Does the loan process vary with each lender?

Each lender has their own SBA loan process. The smaller banks and lenders have a manager and underwriter that handle the entire process. Mid-size lenders may have a local loan committee while large banks have a more formal approval process that can slow down the application, processing and eventual approval.

Does each financial institution have a lending limit?

The SBA has two main loan programs. The first is the 7(A) loan program to buy a business or franchise. The 504 loan program is to buy commercial real estate including buildings and related commercial property.

Does the number of loans issued vary with each bank?

A good question to ask an SBA lender is how many loans they have approved. A loan approval number that is small may show they are a conservative lender and may be hard to get an SBA loan approved.

Do the lenders loan to all types of businesses?

Lending criteria changes all the time so don’t be afraid to ask so you get the latest information. Lending includes:

• Retail and service businesses with sales (3-year average) not exceeding $6 million to $20 million, depending on the industry
• Wholesalers and manufacturers with employees up to 100 and 500 respectively, regardless of sales volume

Does the lender need my credit score?

Almost without exception an SBA lender will want to see your credit score, credit history, proof of downpayment and source of money for the downpayment plus your business management experience. If they feel uncomfortable with one or more of this criteria it may be hard to get your loan application approved.

What collateral does each lender need?

Once again, almost without exception, the lender will take a first security interest in all business assets (excluding titled vehicles) plus personal assets (including residences) as collateral.

Do the financial institutions have access to other types of capital?

If the SBA loan allows you to be successful and grow your business, often it means needing more funds to continue the growth of the business. The SBA loan program will probably not be an option but having a strong loan history will lead to introductions to venture capitalists, mezzanine lenders and possibly Angel investors.

Do I need to do all my banking with the lender including daily or weekly deposits from my business?

Some SBA lenders are happy to simply process and approve the SBA loan application. Some lenders will make it a condition that if the loan is approved, the deposits from the operation of the business are made with the bank.

What is the status of your Life Insurance?

One detail that gets left to the last-minute in too many SBA loan applications is Life Insurance. That is, as you are borrowing money to own and operate your business, the SBA lender needs to protect that loan so they ask that their name be added to your Life Insurance policy so the loan can be paid off. If you don’t have Life Insurance in place, you need to get that problem addressed or your loan will be held until it’s taken care of.

What other criteria are important to get a loan approved?

This is not a complete list but the following criteria are important and will be considered by your SBA lender.

• The business must have adequate historic cash flow to cover the proposed amount of the loan
• The business debt to net worth must meet industry averages
• The borrower(s) must be actively involved in the day-to-day operation of the business
• Satisfactory personal credit histories are required for all principals and guarantors
• No past bankruptcies or felony arrests

FREE DOCUMENTS: If you would like some free documents to complement your SBA loan application, sign up for my free monthly newsletter and get access to a range of documents to help you.

Questions or more information?

If you have questions or would like to see if your business would be able to get an SBA loan Prequalification letter, you are welcome to email me at info@RogersonBusinessServices.com. Otherwise, give me a call on (916) 570-2674.