Using the SBA Loan Program to finance a business acquisition is a great financial tool. Transworld has great familiarity with this loan program and works with various lenders with the SBA preferred lender designation on a regular basis. In the following brief discussion, we will outline the basics of using an SBA loan to buy a business. An SBA loan is partially guaranteed by the United States' Small Business Administration (SBA). This guarantee represents the portion of the loan that the SBA will repay to the lender should a buyer need to default on their loan.
Transworld recommends always working with lenders designated as an SBA preferred lender as these financial professionals have been pre-approved by the SBA to work with this loan program. In visiting our Recommended Partners page, a buyer can easily identify a well-trusted SBA lender. To start off the loan process, an SBA lender will review both the buyer's and the seller's information. To begin, the lender will look at the seller's business financials to confirm the business has sufficient cash flow to cover the expected debt service of the loan.
Next, they will look at the potential buyer's personal financials to ensure they qualify to borrow the amount of requested funds. Once initial pre-qualification requirements have been met the buyer, seller, lender, and the broker will work together to close the transaction. Prior to funding the loan, the lender will seek proof from the buyer that they have the personal funds to support the transaction including tax returns, bank statements and/or credit reports. The buyer will also be required to obtain insurance for their business and to collateralize the loan. In some instances, the buyer will need to develop a business plan for the next few years including sales projections to satisfy the lender's requirements.
Finally, as part of the SBA loan, the seller is required to carry a portion of the loan as well, which helps let the SBA know that all parties are vested in the success of the business transaction. While it seems that securing an SBA loan for a business acquisition requires a lot of personal information and time, working with Transworld and a preferred lender will make this process a breeze.
For more information on the process of buying a business please visit our website or schedule a consultation with one of our brokers today!
Rachael Holstein joined the Transworld Team in 2016 as Marketing Coordinator. Her working experience has been largely focused on Business Development and Marketing in the finance, architecture, property management, and information technology industries. A long time resident of Cleveland, Ohio, she attained her Undergrad from John Carroll University and a Master's Degree in Global Interactions from Cleveland State University. She relocated to Denver in 2013 for a change of scenery and a bit of adventure.
Disclaimer: Transworld is not a bank, lender or affiliate of the SBA. All views and opinions expressed in this blog post are solely those of Transworld.