SBA Financing Options
There are many options you can utilize to finance the sale of your business. We at Sunbelt Business Advisors (SBA) are here to help you understand those options so that you can best choose the path that’s right for you.
Option #1 – Bank with an SBA Guarantee with or without a Small Seller Note
This is the most commonly selected business finance option. Some things to keep in mind when considering this option are:
- Sometimes it requires the Seller to take a subordinated small note (no problem except for SBA 155).
- Occasionally it requires additional collateral – Buyer’s house and any other Buyer assets.
- If a Buyer gets into trouble and misses payments, the bank will shut down the business & foreclose.
- Lifelong employees can be laid off (even those that are like relatives to the Seller).
- Lifelong creditors are not paid off (maybe some who are the Seller’s personal friends).
- The customers will have no place to acquire goods & services (some who are the Seller’s personal friends).
- The business could close, causing the Seller’s legacy to be gone forever.
- If the bank has an auction, auction proceeds don’t cover the bank note (not many hard assets). Therefore, the Seller’s note is worth nothing and the business is gone.
- Most of the time, Buyers make payments on time and all works well.
- Having SBA financing available opens up the market to many more potential Buyers.
- The Buyer typically only needs 20% down; SBA funds 70%, and the Seller carries a note for 10%.
Option #2 – Seller Financing
- Seller only pays tax on the down payment and not on the note amount.
- Seller gets a good return on their money and a nice monthly income.
- Seller is protected because they get monthly P&L, Balance Sheets, Rights to Offset, etc.
- If Buyer gets into trouble, the Seller already knows because of the monthly reports.
- Together, Buyer and Seller work out problems (maybe Seller doesn’t get a payment or two, but the business continues).
- Business continues; Buyer’s down payment is safe and Seller’s note is safe.
- Employees’ jobs are safe, creditors are safe, and clients continue to get goods and services.
- Sellers typically carry 5% – 50% of the purchasing price.
Option #3 – Cash from Buyer
It’s that simple.
Delve A Bit Deeper
If you have additional questions about financing options, don’t hesitate to contact us. The dedicated team at Sunbelt Business Advisors is proud to assist business owners in Santa Clara, San Jose, Sunnyvale, and Mt. View discover the best financing options for them.
Furthermore, please feel free to use our “buying a business” or “selling a business” forms.
*Note – down payments are normally equal to the Seller’s Discretionary Earnings (SDE). And if your business is not SBA financeable, remember that someone else must finance the balance.