Use an SBA Loan to Buy a Business
Only 10% Down Payment Required for an SBA 7A Loan
Most of the businesses we sell are financed with an SBA business loan that the buyer obtains. This is a win-win for the buyer and seller compared to seller financing. The seller receives most, or all, of the price at the closing and the buyer can finance the purchase for a longer time with a lower down payment using an SBA loan. We are very familiar with SBA loans and help buyers find a lender that can provide the SBA loan.
An SBA loan comes from a private lender and is guaranteed by the government. There are three classifications of SBA lenders with "Preferred SBA Lender" being the highest. The benefit of getting an SBA loan from a preferred SBA lender is that they can approve the loan, rather than needing the approval of the SBA. Also, their people are generally more familiar with the SBA loan process. They are more likely to process the SBA loan quicker. The SBA Boston website has a list of SBA lenders in this area. This list shows which lenders are preferred SBA lenders.
The primary SBA business loan used by business buyers to buy a business is the 7A program. A 7A SBA loan is used to purchase business assets, such as inventory, working capital, equipment, and goodwill (the excess of the purchase price over the value of the underlying assets). Effective January 1, 2018, the down payment requirement is going down to 10%. The term of a 7A loan is typically 10% and the interest rate is about 2.75% over the prime rate. A 504 SBA loan is used to buy real estate and long-life equipment. It normally requires a 15% down payment and the term of the SBA loan is 20 years. These are normally fixed interest rate loans. Today, a typical interest rate on a 7A loan is around 7% and on a 504 loan, it is around 5%.
In order for a business buyer to obtain an SBA loan, the business and the buyer need to qualify. The business, through its tax returns, must show that it provides enough money to pay the buyer's income needs, repay the SBA loan, and provide a margin of safety. The buyer must be creditworthy and have satisfactory business experience.
We are experienced dealing with SBA loans. If you are looking for a business to buy, contact us. If you buy the business through us, we can help you get the SBA business loan to buy it.
BayState Business Brokers, 60 Kendrick St., Suite 206, Needham, MA 02494
T: 617-562-5700, F: 617-562-5701, firstname.lastname@example.org