Financing Options Available for Buyers
Insight on the SBA
Buying a business can be frightening for a buyer but, fortunately, financing the acquisition does not have to be. There are several financing options available for start-up companies, business acquisitions and business expansions.
It is typical with financing acquisitions that a portion of the purchase price includes goodwill, which may represent true value to the business but does not necessarily provide any tangible collateral to the lender. By working in conjunction with SBA, the lender can often provide financing to the buyer while minimizing risk to the lender, a win-win for both parties.
There was a time when the sheer mention of SBA financing brought tears to the eyes of lenders and borrowers. However, those days no longer exist and bankers welcome the opportunity to work with SBA. The process has been significantly streamlined over the years through technology and the addition of numerous SBA programs to provide quick approvals and closings for the borrower and the lender. Depending on the nature of the business, the loan amount and the type of collateral being provided, loan closings can range from a couple of weeks to 60 or more days. The delay is typically due to the requirement of appraisals as well as business valuations.
With business acquisitions, along with startup companies and existing businesses, it is critical for the borrower to be surrounded by three key partners: A reputable attorney, an experienced CPA and a lender who is well versed in SBA lending as well as conventional lending. This team of individuals is committed to the borrower to ensure that the business being purchased carries a valid price as well as adequate cash flows to support the business, the owner’s personal goals and the bank debt. These individuals play an important role in providing the financing structure that is appropriate for the borrower while minimizing risk to both the borrower and the lender. Many times, SBA is the fourth key partner to make the financing possible.
"The partnership between SBA and lenders has proven invaluable to borrowers otherwise unable to fulfill their dreams under another financing arrangement."
While cash flow pays the bills and is the primary factor to consider when buying a business, collateral is important to the lender as it provides some cushion should the business be unsuccessful. However, no lender wants to liquidate collateral as a source of repayment. Without adequate cash flow, the deal typically is not doable unless personal incomes and personal collateral from outside sources is available to support the debt. If cash flow is proven and buyers appear to be experienced to operate the business, then collateral shortfall can often be mitigated by utilizing SBA as a guarantor.
Lenders and SBA have worked together for many years to provide individuals an opportunity to start, acquire and expand existing businesses. The partnership between SBA and Lenders has proven to be invaluable to borrowers who would otherwise be unable to fulfill their dreams of business ownership under any other financing arrangement.