The SBA loan program is essentially a program to encourage and assist new entrepreneurs. It does this by providing access to capital to buy or start a business. For business sellers, though, 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. Its success is assisting millions of loans, loan guarantees, contracts, counselling to business owners and buyers and more.
Part of its charter is to provide assistance to small businesses with access to capital or business financing, education, information and technical assistance training and assistance with government contracting (help to small businesses with federal procurement.)
If you are planning to sell your business or franchise there is great value to in getting an SBA loan pre-qualification letter. One of the steps I help as your business broker is to check with SBA lenders to see if they would issue a Prequalification Letter.
A Prequalification Letter does not mean your business is approved for an SBA loan. It does mean, however, that when a buyer inquires about buying your business AND you have an SBA Prequalification letter (because the SBA lender has seen your business financial statements and more) your chances of selling your business are now higher. The the buyer needs to have the necessary requirements to get an SBA loan. However, with both element in place the speed to close the sale of the business is much higher as the buyer, lender and seller now work together and spend time on the transaction so it closes.
A lot of buyer and seller transactions simply die due to buyer and seller fatigue. Having a business pre-qualified for a loan removes a large obstacle and will encourage other third parties such as a landlord, attorneys and accountants to keep spending time on the deal.
Here are some common Frequently Asked Questions or FAQ’s I’ve received over the years from business or franchise owners asking how the SBA program helps them sell. If you have questions or need more information, 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.
Different lenders have different criteria for approving an SBA loan. The management skills and creditworthiness of the buyer are critical. For the the seller, the lender wants to know the industry your business is in and they want to review your financial statements including tax returns, Profit and Loss and Balance Sheet to determine, in the first instance, if they would be willing to offer a loan.
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.
Lending criteria changes all the time. Lending includes:
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.
Because the lender will take a first security interest in all business assets, the sellers note will be in second position.
If the loan is for a business acquisition, the maximum loan amount is $5,000,000 with the average down payment of 20%. This down-payment can come from a combination of both the buyer down-payment and the seller being willing to carry a Sellers note on the balance.
If the loan is for commercial real estate, the maximum loan amount is $5 million with the borrower bringing a down payment of 10% to 15% and the maximum term of the loan of 25 years.
This is not a complete list but the following criteria are important and will be considered by your SBA lender.
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.