Found A Business For Sale? Update On SBA Loans
The SBA loan limit for business acquisitions, excluding the real estate portion, has been increased $5.0 million. The loan amortization period is up to 10 years and interest rates remain at historically low levels. There is good availability of funds if you are looking at a business for sale. At present, Buyers should expect to make a down payment of at least 15%. Sellers can continue to anticipate carrying a short-term note of 10% or more. Seller notes are generally interest only for three years, with a balloon payment financed by the primary lender. Requirements can vary from lender to lender.
Prospective purchasers should expect that the SBA lender will require collateral in addition to the business being acquired. This is most commonly a lien on the Buyer's personal residence. Sellers will be in second position with regard to collateral for the Seller Note.
The SBA has taken a more pragmatic approach to the amount of Goodwill as a proportion of the amount financed through an SBA loan. This is good news for prospective purchasers because the majority of business sales have low amounts of "hard assets" and the purchase prices are driven primarily by the size of business cash flow.