Effective January 2018, the SBA (Small Business Administration) made a major adjustment to their basic acquisition lending parameters.
Here’s how it changed.
Previously, the SBA has required a minimum of a 25% down payment on the purchase of businesses and a 10% down payment on the purchase of the real estate that often comes with these businesses.
New rule #1 is you only have to pay 10% down for business components. That’s 60% less down payment to buy the same business. So, if you’re paying $1,000,000 for a business, your down payment just changed from $250,000 to $100,000. You keep an extra $150,000 in cash while you’re out buying cash flow.
Note that borrowers still must have the necessary collateral, credit score…etc., but these items have always been part of the equation. Banks (SBA lenders) are wasting no time jumping in with the new terms. Remember, banking is a very competitive business and nobody wants to miss an opportunity.
New rule #2 is SBA lenders can allow seller financing for up to half of the 10% down payment as long as the seller financing piece is on full standby for the entire duration of the loan. Continuing with the example above and with the seller’s agreement to finance half the down payment, the buyer would only need $50,000 in cash (collateral, credit score…) to by a $1,000,000 business.
As always, we hope it helps.
Brad Barnett, President
BFS®
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