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:
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.)
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.
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:
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.
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.
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.
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.
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.
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.
Lending criteria changes all the time so don’t be afraid to ask so you get the latest information. Lending includes:
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.
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.
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.
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.
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.
This is not a complete list but the following criteria are important and will be considered by your SBA lender.
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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.
YOUR SACRAMENTO CALIFORNIA BUSINESS INTERMEDIARY
5150 Fair Oaks Blvd, #101-198
Carmichael, CA, 95608-5788
Phone: (916) 570-2674
Fax: (916) 473-8655
Buying or selling a business is a complex process – and you shouldn’t go through it alone. You need an experienced business broker to guide you through the process.
We make buying and selling businesses simple and straightforward. We’re qualified to handle the most complicated aspects on behalf of our clients, ensuring you walk away satisfied.