03 Apr SBA Financing – Finding the Best of the Best
SBA Financing – Finding the Best of the Best
How do you buy a really great business with the minimum amount out of your pocket?
In short, you acquire an existing business! Acquiring an existing business provides you with many advantages over other types of startups. Some of these advantages are access to existing customers, trained employees, already flowing revenues and much, much more.
So how could it get any better than that?
You get an even more significant advantage when you acquire a business that is strong enough to qualify for SBA financing. SBA financing allows you to buy a qualified company with only 20% down and sometimes less. Not to mention, you get to spread the payments out for as long as ten years. If the business includes real estate, the payments could be stretched out for as long as twenty-five years!
SBA pre-qualified businesses are rare.
Recently, we reviewed a list of 3,308 companies for sale (as of March 31, 2019). Out of that list, we looked at three criteria:
- The Business had to be SBA pre-qualified
- The Business was advertising its earnings based on its recorded tax returns filing
- Business netted at least $125,000 to the owner
Out of the 3,308, only 92 met these three criteria – that’s just 2.8%. There were other businesses for sale that were pre-qualified but making less than $125,000, and there were some that had SBA pre-qualification but pulled their reported financial claims from something other than tax returns.
SBA pre-qualified businesses get the lender’s due diligence to help verify the records. Besides the advantage of buying a company for a very little down, you also get the benefit of having the bank’s support of a business valuation and professional due diligence. Bank due diligence is generally comprehensive, but it should augment, not replace, your own research. Always be thorough and accountable to yourself.
SBA pre-qualified businesses are a win-win for Buyer and Seller.
The Buyer gets in for very little down. The Buyer also gets to spread the payments over a period of 7 to 10 years. The Seller receives all of his or her money, or at least most of the money, at the closing. The Seller does not have to worry about providing Seller financing and making sure that he or she collects every penny from the Buyer.
SBA pre-qualified businesses are highly prized.
Since these are typically the best of what is for sale on the market, don’t expect prices that are at average or even below average. These generally have excellent records, and they are often acquired with a fraction of the price down. When you look at what businesses in specific industries sell for on average, keep in mind that the average is usually comprised of many sold businesses, most of which did not have SBA financing and many of which had priced the company to accommodate all-cash offers, poor records, and other challenges.
SBA pre-qualified businesses are worth searching for.
Just be cautious about the companies you encounter. You can ask early on in the process whether the Seller has prequalified the business. Even if they have not, it still might be possible to do, if the company for sale has good records, and it is making a good profit. Not all banks view all businesses or buyers the same way, so be prepared to shop around. Check with your attorney for proper wording.
SBA pre-qualified businesses are an excellent way for you to go if you meet the right criteria. Just remember, the business has to qualify and so do you. Many banks have approved Buyers with credit in the six-hundreds, and many banks can live with an old bankruptcy. They can forgive almost anything except an unpaid student loan. Additionally, you will need to convince the bank that you have what it takes to run the business, especially if you do not have direct industry experience. Re-writing your resume and creating a smart business plan can really help out when you don’t have industry experience.
SBA pre-qualified businesses mean you are getting the best of the best of the best.
You get an ongoing, profitable business in most cases, and you only have to put down a fraction of the whole price down. You can often get more money for working capital and improvements.
If you make an offer and you need SBA financing, you can create a contingency stating that the offer depends on you getting SBA funding.
Below is an example of a great lender pre-qualified business currently for sale, but there are many more that might interest you just click here to search for more. If you are looking to own a great company, request more information specifically about SBA pre-qualified businesses. Let us find more great SBA pre-qualified opportunities. We can share how you might be able to get in for less than 20% and how you can use your 401K or IRA for the down payment without paying the traditional penalties and taxes.
Is it time for YOU to go from employee to CEO of your own firm? Reach out to us today – we would love to help you find the right business, at the right price.