Advantages of Buying an SBA Pre-Qualified Business

One of the best ways to become an entrepreneur is to acquire an existing business. Quite often, the best way to acquire an existing business is by using an SBA loan. SBA backed lenders help Business Buyers acquire existing, cash-flowing businesses.

Buying an existing business often has advantages over start-ups and new franchises, such as existing cash flow, established customer base, trained staff in place, and proven systems and processes.

Who Usually Qualifies for SBA?

Only about 10% of the businesses for sale on the market today have been SBA Pre-Qualified (none can be Pre-Approved). Usually, it is a sign of a very nice business. Most businesses don’t qualify for SBA backed loans. Check BuyBizFL.com for pre-qualified businesses in Florida.

Pre-Qualified means that an SBA backed lender has taken a first look at the business and believes that it would consider providing a business acquisition loan to a qualified Buyer. Some businesses currently on the market have not yet been pre-qualified and may also be eligible. However, many businesses don’t have the records, earnings, or other qualities that fit the banks’ requirements.

There are a number of SBA programs but the 7A remains one of the most popular. See SBA.govfor more details and other programs. The 7A program depends more on the cash-flow of the business, and less on the value of the tangible assets and real estate.

Here are a few advantages and qualities of an SBA Loan:

Down Payment: A great way to acquire an existing business to put down only 10% to 25%. The SBA rules changed January 1, 2018, to allow as little as 10% down. However, banks make their own decisions about down payments and other loan criteria.
Time of Loan: SBA loans are spread over a long period, usually 7 to 10 years.
Interest Rates: Interest rates vary but our last few deals have been 7% to 8% but shop around. Think through whether you will want a fixed rate or a variable rate. Some banks do not offer both options but be sure you know what you are getting. You may have to speak with a number of banks to get perspective on the range of going interest rates.
Credit Rating: You don’t have to have a perfect credit score – some banks will accept 640. If you have an unpaid student loan, that will probably be an issue you need to resolve before getting a loan.
Due Diligence: Banks will conduct detailed research on the company you acquire. While you should not solely rely on the bank to conduct your due diligence, realize that banks typically perform a very thorough analysis of the business which includes a business valuation in most cases.
401K / IRA Use: You can use your retirement savings (401K, etc.) for a down payment. If you use your 401K or other retirement programs that allow you to avoid penalties and taxes, confirm that the plan you use is in strict compliance with the IRS guidelines.
Shop Around: Not all banks will see the business you are buying the same way. Some will like a business that others will not. Shop around and talk with different banks.
Negotiate: Not all terms are set in stone. Negotiate the best deal. Keep your options open and get your terms and loan details in writing.
Closing Time: Find out how long it takes for the bank to get a deal completed. You may need to put a timeline in the purchase contract if you are looking to buy a business with an SBA loan. It can take 60 days and sometimes it can take longer, especially if there are holidays involved, or a government shut down in place, or a possible hurricane coming through your area.

We know a lot of banks. If we can help connect you to a few banks to talk to, please let us know and we will do our best to connect you.