Since there are approximately 32 different factors that go into the decision
making process for an SBA loan, potential buyers need to be prepared well in
advance with the information below to increase the odds of getting an SBA
loan or a commercial loan. Most borrowers also don't realize that all
lenders are different in their criteria for SBA loan requests, and that
their criteria is always changing!
1. Buyers need between 10% - 30% for a down payment depending if there is
real estate with the business or
franchise
or if just the
business is being sold by itself. The down payment can come from many
different sources: savings, equity built up in your home, a gift (only from
family members), or retirement plan (401K, Pension, IRA etc.). Borrowed
money can not be utilized for a down payment.
2. Buyers need to have good to excellent credit (usually a credit score
above 650). Any bankruptcies or many late payments will usually nullify the
chances of a borrower no matter how good the other criteria looks. Get any
"dings" in your credit history removed or fixed well before the buying
process. Early in the lending process, the lender will be running a credit
check to see if you qualify.
3. Lenders also like management experience or buyers who have previously
owned a business (self-employment) and know what it takes to grow and keep a
business on track. You will need to provide a resume or description of your
work experience.
4. If there have been any downward trends in earnings over the previous
three years there should be a very good explanation or the deal will
probably not be approved for financing. History of earnings (revenues) both
total annual revenues and adjusted net income should have a either be flat
or growing over the previous three years.
5. Positive cash flow (or adjusted net income) must cover the debt service
of the loan and provide you with an adequate income to live off on,
otherwise you won't get the loan. Lenders look closely at the tax returns of
the business being sold - so if the seller is not showing income, excess
false deductions, etc. on his business tax returns) chances are you won't
get a loan. Ask for the business tax returns early in the process of looking
at a business and see if you can "add back" sufficient net income,
depreciation, interest, and owners salary (adjusted net income) to pay back
the loan.
6. Does the business or
franchise
that's being sold have
management in place or key employees who ar going to stay? Try to get
commitments from existing key personnel and management to stay for a period
- this shows the lender continuity and less risk after you take over.
7. Make sure there is adequate training after the sale of the business. Make
sure you negotiate this point carefully in the purchase agreement.
8. Lenders will also want to
know if you have any other outside sources of income i.e. other business
income, income from a spouse's employment, rental properties, investment
income etc. 3 years of current personal tax returns will also be required.
9. The
loan process
takes anywhere from 22 to 45+ days with us - it really depends on you. The
quicker you get info and forms back to us, and how available you are to
answer any questions we or the lender may have will depend on how quickly
the loan will be processed.
10. Deal structure is critical in most financings. You need to structure the
deal (and priced right) before submitting your
loan package
. Only 30% of all submitted
SBA loans submitted direct to lenders for business purchase financing are
funded. Our success rate is well over 90% because of the way we assist in
and structure deals.
Whether you are selling a business and your buyer needs financing to
purchase your business or you are a business buyer needing the best SBA loan
to purchase a business quickly and efficiently go to
www.BizBuyFinancing.com. They have been specializing in SBA Loan purchases
for business purchases since 1995!
