I get asked by prospective buyers what the steps are for acquiring a business utilizing an SBA loan. Thus, I thought I’d outline them at a high level from the perspective of a prospective buyer:
Define Your Vision & Conduct Market Research: Clearly outline your business goals, industry preferences, and financial constraints. This is for you (as a buyer) more so than anything, but the lender and sellers will want to understand this from you as well. Clarity is important.
Assess Finances: Review your personal and business finances, ensuring a good credit score and evaluating your ability to make a down payment. You need to also consider closing costs and a few months of extra reserves for the business. These additional line items can be financed, but would increase the amount you borrow, which increases the down payment required and decreases the cash flow of the business.
Connect with SBA-Approved Lenders: Identify and approach SBA-approved lenders, working closely to understand available loan programs and eligibility criteria. Interview them as much as they interview you. It’s important to note here too that you, as a buyer, could go to a lender before you even find a particular business to buy. This allows the lender to pre-qualify you financially to see how much you could afford.
Craft a Business Plan: Develop a comprehensive business plan outlining your strategy and financial projections as this is crucial for SBA loan approval.
Submit a Comprehensive Application: Include your business plan, financial statements, and required documentation in your loan application. Double check what you submit prior to submitting it.
Await Loan Approval: Patiently await the lender’s decision, being ready to provide additional information if requested during the due diligence process.
Negotiate Business Purchase: Once approved, negotiate terms with the seller, possibly with the assistance of professionals like business brokers and attorneys.
Fulfill SBA Requirements: Work with the lender to meet additional SBA requirements, including securing collateral and finalizing legal documentation.
Close the Deal: Coordinate with all parties involved to finalize the acquisition. Once funds are disbursed and documents signed, you officially become the new business owner.
Seek guidance from your broker, financial advisor(s) and legal expert(s) to ensure a seamless transition. With some strategic planning and help from advisors, acquiring a business through an SBA loan can be quite achievable.
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