SBA - SMALL BUSINESS ADMINISTRATION

 

The following documentation will be needed to complete and process an SBA loan application.

1) Copy of purchase contract

2) Copy of management resumes for each applicant owning 20% or more of business signed and dated    – you can use the one in the SBA application

3) Copy of personal tax returns for 2007, 2006, and 2005 signed and dated for each applicant owning 20% or more of the business 

4) Personal financial statement, signed and dated, for each applicant owning 20% or more – you can use the one in the SBA application

5) Corporate tax returns of any affiliate business 2007, 2006, and 2005, signed and dated

6) Business plan including products and services, location, demographics, # of employees, customer base

7) Copy of green card if applicable front and back

8) Name address and phone number of banker, accountant and attorney

9) Check (refundable if loan is declined)

10)  Interim financials for sellers business ending to-date

11)  Copy of personal bank statements for the last two months showing cash to buy the business

 

 

7A Guaranty Loan Program

Purpose:

The SBA Loan Guaranty Program provides the Bank up to 75% guaranty on Long term loans when the proceeds of the loan are used for fixed asset purchases, working capital, or the refinance of existing debts for owner-occupied business.

Use of Proceeds:

· Up to 90% financing for the purchase of land and /or building.
· Up to 80% financing for the purchase of machinery and equipment.
· Up to 90% financing for the expansion of an existing facility.
· Can refinance 100% of existing debt under certain conditions.
· Up to 80% financing for the purchase of an existing business.
· Can finance working capital and closing costs in conjunction with the above.

Eligible Businesses:

· Operating, for profit Corporations, Limited Liability Corporations, Partnerships or Sole Proprietorships.
· Business in existence for minimum of two years.

Target Loan Size:

· Minimum loan of $150,000.
· Maximum loan of $2,000,000.
· Loans above $2,000,000 will be looked at using the SBA's "piggy back" loan program.
· The maximum loan amount under the "piggy back" program is $3,500,000.

 

Loan Structure:

· Up to 25 year financing for real estate acquisitions, real estate refinances land purchases or construction loan take-outs.
· Up to 10 year financing for the purchase of an existing business.
· Up to 10 year financing for the purchase of machinery and equipment.
· Up to 7 year financing on working capital, and closing costs.

Interest Rates:

· Loans will be priced on a variable basis, tied to the Florida Prime Rate and will adjust quarterly.
· Minimum pricing will be at New York Prime + 1.50%
· Maximum pricing will be at New York Prime + 2.75%

Qualifying Criteria:

· Owner must be actively involved in the business operations.
· Business must have adequate debt service coverage based on historical earnings.
· Business must have an adequate debt to worth based on the adjustments to the pro forma balance sheet using the benefits of the new loan.
· Borrower's business must occupy no less than 51% of an existing building and no less than 67% of the "to be built" facility.
· Alter Ego Ownership of the company's real estate is allowed.

Collateral:

· No unsecured loans are available under this program.
· Goodwill is considered to be an asset when a business is being purchased.
· If the SBA loan is under-collateralized based on the SBA' Liquidation values, the guarantor may be required to collateralized his/her primary residence by utilizing a 2nd or 3rd mortgage.

Fees:

· The SBA does not allow the Bank to charge the borrower points on a 7A guaranteed loan, unless it involves a construction loan.   The SBA charges a fee, which is based on the size of the loan guarantee.  The bank will charge a packaging fee of $1,500 on all loans.

 

Steps to getting an SBA Loan

SBA Loans – 11 Steps Needed To Finance That Business Purchase!

Getting financing to buy a business can be one of the most important aspects of buying a business. Not too many buyers have all cash for a purchase and not many business owners are willing to take back a sizeable note. Buyers need to be prepared well in advance with the information below to increase the odds of getting a loan to buy a business.

Lenders look at many different things in both the business buyer (borrower) and at the business that is being purchased. Below are some key factors that make a difference whether you will receive SBA financing to buy a business:

1. Buyers need between 15% - 30% for a down payment depending if there is real estate with the business or if just the business is being sold by itself. The down payment can come from many different sources: savings, equity built up in your home (home equity line of credit or 2nd on your home), a gift (usually from only family members), or retirement plan (401K, Pension, IRA etc.). You CAN NOT borrow the money or utilize a credit card for your down payment!

2. Buyers need to have good to excellent credit. Any bankruptcies or many late payments will usually nullify the chances of a borrower no matter how good the other criteria look. Get any “dings” in your credit history removed or fixed well before the buying process. Early in the lending process, the lender will be running a credit check to see if you qualify.

3. Lenders like a borrower who has experience in the business they are buying or in a related industry, or with specific job skills relating to the business they are buying. Lenders also like management experience or buyers who have previously owned a business and know what it takes to grow and keep a business on track. You will need to provide a resume of your work experience. Have one ready that focuses on your industry strengths and management experience.

4. Buyers should write up a mini business plan on the business they are thinking of buying. Lenders usually require this to make sure you know about the business and industry you are buying into and what you are going to do with the business once you buy it. These plans can be a short outline (3-5 pages) where the business has been, what is happening with it now, and what you plan to do with the business once you buy it.

5. Positive cash flow (or adjusted net income) must cover the debt service of the loan and provide you with an adequate income to live off of, otherwise you won’t get the loan. Lenders look closely at the tax returns of the business being sold – so if the seller is playing any games (not showing income, excess deductions, etc. on his business tax returns) chances are you won’t get a loan. Ask for the business tax returns early in the process of looking at a business and see if you can “add back” sufficient net income, depreciation, interest, and owners salary (adjusted net income) to pay back the loan

 

6. Does the buyer have equity in any real estate that can be attached to the loan? Although not imperative with some lenders, this can strengthen the deal if the other parts of your loan application are weak such as the down payment, work experience or a lower credit score.

7. Does the business that’s being sold have management in place or key employees who are going to stay? Try to get commitments from existing key personnel and management to stay for a period – this shows the lender continuity and less risk after you take over.

8. Make sure there is adequate training after the sale of the business. Lenders look for a training period to be anywhere from 2 months to 12 months from the seller (depending on the type of business you are buying and your past work experience and how it relates to the business you are purchasing). Make sure you negotiate this point carefully in the purchase agreement.

9. Will the seller take back a note? If the owner is willing to take back a note (even a small one for 10%-20%) this shows the lender that the owner is confident in the deal and is willing to take a chance on the buyer!

10. Lenders will also want to know if you have any other outside sources of income i.e. other business income, income from a spouse’s employment, rental properties, investment income etc. You will also need to provide 3 years of current personal tax returns.

11. The loan process takes anywhere from 30 to 60+ days and it really depends on you. The quicker you get info, forms, and questions answered to the lender the faster the process takes. When the lender asks for certain data/info move on it quickly!

 

This information is subject to change without notification.

 

As international business brokers working on your behalf,
thank you for allowing us to help you.