The SBA or Small Business Administration’s Small Business Loan Program, primarily the 7(a) program is the source of most small business sale financing. Without the SBA it would be virtually impossible to sell most small businesses unless the seller was willing to self-finance.

The SBA Business Loan Program is an effective financing tool for the sale or merger of businesses. It will finance up to 75 to 80% of the appraised purchase price of a business including the goodwill value. (SBA Business Valuations are business appraisals). Good will is the intangible value of your business that exists anytime your profits justify a price above the physical assets you are selling. Goodwill is risky to finance because there is nothing to return to the lender in the case of default.

Just to be clear, SBA does not provide financing. The bank you get the loan from provides the financing. The SBA guarantees 75 to 90% of the loan value reducing the risk to the bank so the bank will make the loan to you. Therefore you actually are getting two approvals, one from the bank and one from the SBA. Preferred SBA lenders have the authority to underwrite the loan for the SBA so while it is two approvals many lenders can provide both approvals in-house.

Yes, this is a government sponsored program so there is paperwork. Yes, it can be cumbersome and frustrating. Also, it is more expensive than non-SBA financing if you can get non-SBA financing. But, for most buyers and sellers SBA is the way to go.

Plan your approval timeline realistically; it will take 90 to 120 days. If you are a buyer review your prospects for approval with your lender and listen to their suggestions. Provide an organized complete package and diligently follow-up on any information requests. If you do that and all goes well you should be completing your SBA loan process and going to closing in what seems like no time at all.

Gregory Caruso, JD, CPA, CVA
Harvest Business Advisors
Business Brokers, Business Valuation
Columbia, Maryland,  Princeton New Jersey