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Why Pursue an SBA Loan Rather than a Conventional Loan?

SBA loans often get a bad rap, but SBA loans make it possible for buyers to obtain financing for many business acquisitions in deals where a conventional loan is not an option. They also provide some benefits that are not features of a typical conventional loan.

Let’s begin with a Loans4Biz (L4B) success story.

Roger learned about a service business that was available for purchase from his buddy, whose father owned the business.

Roger decided to make a full price offer on the business.  The business’s hard assets were valued around $20,000, but the cash flow of the business averaged well above $120,000 annually for two years in a row.  It would not be possible for this particular buyer to obtain a conventional loan to obtain a business that had assets worth only about $20,000.

Roger asked Kelly Tivis, who manages the Loans4Biz program, to help him obtain financing.  A CDR (Confidential Deal Room) was prepared with all of the information typically required by lenders who provide SBA loans (loans that are made by lenders but are guaranteed by the SBA).  The deal was presented to lenders and a handful of lenders eventually responded with letters of interest (or term sheets) after reviewing the CDR.

One lender proposed a competitive rate with a ten year term and included a separate working capital loan of $50,000.  This lender did require 15% from the buyer or a small amount of seller financing (which was the option selected after the seller agreed to it).  Note that, even though the SBA requires only 10% equity injection (down payment) from a buyer (borrower), a lender can require more.

Because many lenders participate in the Loans4Biz program, Roger was presented with a number of options and he was able to select the option that worked best for him, and the deal successfully closed.

It would not have been possible for Roger to obtain a conventional loan, but Roger was able to obtain an SBA loan to acquire this business due to the flexibility built into SBA loans.  Many of the features of an SBA loan are listed below.

  • SBA loans are backed by the government. With the SBA taking on most of the risk, lenders are more willing to lend to small businesses that might not otherwise qualify for a loan.
  • SBA loans come with longer terms, which means lower monthly payments for business owners. Both 7(a) and 504 loans have terms that range from 10 to 25 years.
  • One of the biggest advantages of an SBA loan is that you can get a loan without meeting the stringent qualifications a conventional lender may require of its loan applicants. This makes the SBA program a great option for new businesses or businesses with limited collateral.

The Loans4Biz program saves participants time and money by offering the following benefits:

– Assistance with gathering and completion of documents required by most lenders

– Initial communication with all lenders managed by the Loans4Biz program manager

– Much better chance of finding a lender who is interested in providing a loan

– A number of financing options and scenarios presented for consideration

– Thousands of dollars of interest saved over the full term of the loan

Although the Loans4Biz program was created to assist buyers of businesses listed by CBI, the benefits of using the Loans4Biz program are available to anyone who needs assistance with financing…whether or not you are buying a business listed by CBI. To learn more about the Loans4Biz program, contact Kelly Tivis @ 479-770-8989 or [email protected]