How to Buy a Business with SBA financing

Successful Business Women

How to Buy a Business with SBA financing

From Legacy Business Brokers

We live in a great country where financing the purchase of almost everything is the norm. It’s certainly the norm for cars and houses. It’s also often a great way to purchase an existing business.

SBA lenders often finance companies that are priced right and have good financial records. Here are a few tips for financing a business acquisition with an SBA-backed business loan.

Find the right business

Only about 10% of the businesses in the marketplace are SBA prequalified. Look for businesses with ads mentioning SBA funding and the like. Some of the other businesses might qualify as well, but most will not. To qualify, the company will need outstanding records, a healthy financial performance, and a reasonable price.

Look for the right wording

It’s prequalified – not preapproved. There’s a big difference. Banks will often look over a business’ data to prequalify it for SBA financing. However, they still need to conduct their thorough due diligence on the company and the Buyer. Business Buyers can also get prequalified. Talk to a few banks early in the process of shopping for a business. You will have a better idea of the process.

10% to 20% down

At the time of this writing, the Small Business Administration’s standard operating procedures state that one can purchase a business for as little as 10% down. However, banks have their criteria and may request 15%, 20%, and sometimes more downpayment. It depends on several factors, including the Buyer’s background, experience, credit, and the perceived risk of the given business.

Buyer qualifications

The bank will look at several characteristics of the person that’s looking to buy the business. They want to be convinced that their background and experience and skillset are sufficient to do a great job and run the business. Some banks want to see Buyers with industry experience. Other banks just make sure the Business Buyer has the skills necessary to do a great job.

Credit requirements

Each bank has its own criteria. We’ve seen people secure an SBA loan with a credit score of 640. Again, each bank will have its standards. People with bankruptcies have gotten loans if enough years have passed since the bankruptcy. Delinquent and unpaid debt on government-backed loans usually is a deal killer. People who haven’t paid their student loans usually cannot get an SBA loan until they’ve cleared the student loan.

Down payment source

Banks usually look back over several months to make sure they understand the source of the money. They typically want to make sure that the person buying the business has their down payment.

Using retirement funds

Many individuals buy a business using 401(k) and IRA funds for the down payments. The current program allows people to avoid paying penalties and before taxes when apply this process. Additionally, there are no requirements for repayment back to the retirement account. Always use an experienced professional firm to make sure that the accounting is set up correctly.

Quite often, banks will give you the most significant amount of attention on approving A loan when you have an offer in place. Ensure that when you make an offer and need SBA funding, you’ve written the contingency that allows you to discontinue the deal if you can’t secure proper financing.

When in doubt regarding legal, Consult a knowledgeable and experienced attorney. When in doubt regarding financials, make sure that you discuss this with a professional accountant.

Make great things happen with your Business acquisition goals.


Companies who can help you Buy a Business using your 401K / IRA tax and penalty-free and support Legacy Business Brokers Tampa Bay ‎

SBA Lenders who can help you Buy a Business and support Legacy Business Brokers Tampa Bay ‎

Lawyers who can help you Buy a Business and support Legacy Business Brokers Tampa Bay

Accountants who can help you Buy a Business and support Legacy Business Brokers Tampa Bay ‎