Selling Your Business? Get it Pre-Qualified
As I mentioned in one of my previous blogs, the Small Business Administration (SBA) has relaxed some of their policies in regards to lending. I said before that they “became a lot more flexible by making changes to the acquisition policies impacting purchases which included Intangible Assets. These changes give “Preferred Lender Providers” (PLP) more flexibility to provide business loans WITHOUT going through the SBA for final approval. In addition to providing PLPs with greater flexibility, the changes give buyers more leeway in the minimum amount of equity they must invest for the project.” So, how does this benefit sellers and buyers?
Well, sellers whose businesses: (1) have good financial records (normally three (3) years worth of tax returns) ; (2) generate enough cash flow to cover the repayment of the SBA loan AND the buyer’s life style and; (3) are selling their business for at least $300K, may get lenders to Pre-Qualify their listing for an SBA loan. Note: I used the $300K, because most lenders like to provide loans in excess of $250K coupled with equity investments of between 15-25%–which may include seller’s financing. Sellers benefit because when a business is Pre-Qualified, it increases its market potential—more buyers are now able to afford the purchase of the business. Additionally, sellers normally get 100% of the sales value at closing. I recently sold a business within two days after it got pre-qualified.
Now keep in mind that the pre-qualification applies to the business NOT to the buyer!!! Buyers must qualify on their own merits to get the SBA loan to purchase the business. This normally means having good credit, some level of expertise in the business being bought, submission of personal financials (net worth) and the ability to personally guarantee the loan. The buyers benefit because they do not have to sell the merits of the business to the lending organization—the business has been pre-qualified.
So, if you are a seller, ask your business broker to look into pre-qualifying your business for an SBA loan. It may help you in more than one way.
Should you want to know more about buying or selling a business in Orlando or Central Florida, please contact Fernando Simo at 407-361-8886, email me at [email protected] or please visit my webpage at www.bizbuyorsellflorida.com .
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The Small Business Administration (SBA) has recently relaxed some of their lending policies. These changes give “Preferred Lender Providers” (PLP) more flexibility to provide business loans without requirements for an SBA office to issue a final approval. Along with providing PLPs with greater flexibility, the changes give buyers more latitude in the minimum amount of required equity invested in the acquisition.
How does this benefit sellers and buyers?
Sellers whose businesses:
1. Have good financial records (normally three (3) years worth of tax returns)
2. Show enough cash flow to cover the repayment of the SBA loan and the buyer’s life style
3. Selling their business for at least $300K
should get a PLP Lenders to Pre-Qualify their business. The $300K was used, because most lenders like to provide loans in excess of $250K which along with the Buyer’s equity investments of between 15-25% (this may include seller’s financing) equates generally to a $300K or higher asking price for the business.
Sellers benefit because when a business is Pre-Qualified, it increases the market potential to more Buyers who can now afford the purchase of the business, due to the lower required cash investment An additional benefit, is that Buyer’s tend to negotiate less on the Business’ Sales Price, since it has been validated by the Lender’s Pre-Qualification.
This Pre-Qualification is based completely on the Business and the Buyer will need to qualify to get the SBA loan to purchase the business. Buyer qualification includes a satisfactory credit history, management expertise in the business, completion of a SBA personal financial statement and the ability to personally guarantee the SBA loan. The Buyers will benefit because they do not have to prove the merits of the business to the lending organization, since it has been pre-qualified.
So, if you are a Seller, ask your Business Broker to get your business Pre-Qualified for a SBA loan with a PLP Lender. If Sunbelt Business Brokers of Phoenix can be any assistance to you, please contact us at 602-266-1224.