SBA Loans

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% to 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 second on your home), a gift (usually from only family members), or retirement plan (401K, Pension, IRA, etc.).
2. Buyers need to have a good to excellent credit.
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.
4. Buyers should write up a mini business plan on the business they are thinking of buying. Lenders usually require this.
5. Positive cash flow (or adjust net income) must cover the debt service of the loan and provide you with an adequate income to live off of: lenders look closely at the tax returns of the business being sold. 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? 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 is being sold have management in place or key employees who are going to stay? Get commitments from existing key personnel and management to stay for a period.
8. Make sure there is adequate training after the sale of the business. Lenders look for a training period to be anywhere from two months to twelve months from the seller.
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, that is, other business income, income from a spouse's employment, rental properties, investment income, etc. You will also need to provide three 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 information, forms and answered questions to the lender the faster the process takes.

This information is subject to change without notification.