Small Business Owners: Prequalify Your Business for a SBA Loan Early in the Selling Process
Why? Because SBA prequalified businesses for sale in the marketplace sell faster.
The normal train of thought for most people is that it is only the buyer’s responsibility to get prequalified and get financing for the purchase of a business. Yes, the buyer must be able to qualify for a loan. However, the business must be eligible as well. No banking institution will approve a loan for a business that does not provide the cash flow needed to support the payments. Therefore, it is beneficial to the business owner to prequalify the business beforehand.
So……why does is make good sense for business owners to have their financial data reviewed by a bank for SBA Loan prequalifcation purposes? Primarily, because it will result in a more speedy sale! Based on your financials and tax returns from the previous three years, you need to know if potential buyers would be eligible to get a loan to buy your business.
Here are the benefits of prequalifying a business for a SBA Loan.
If you find that your business is NOT eligible for SBA financing, then you know that the deal structure for selling your business will be very different without SBA financing involved. For instance, you would require buyer prospects with more money for a down payment or other financial resources, and/or you would need to provide substantial seller financing to the buyer to get the deal done. An all cash deal without some kind of loan involved is rare.
You will be able to search for certain types of prospective buyers — buyers with the financial profile needed to purchase your business. This will bring the right buyers to the table who can complete the transaction with minimal complications. This will facilitate a faster closing process.
SBA prequalified businesses get more attention in the businesses-for-sale marketplace because it saves potential buyers a lot of effort and time to secure financing. More importantly, however, they know the business is financially sound. The more interest generated in your business, the better the chances for a quicker sale.
If your business is eligible for SBA financing, it will usually get a higher price…..especially if you provide a small amount of additional financing to the buyer. It makes the buyer feel more secure about purchasing your business knowing that you have enough confidence in the performance of the business to provide a loan. Or, based on the buyer’s financial capabilities, you may get all cash instead of having to provide any portion of the financing yourself.
When your business is prequalified for financing, you will also get advice on what types of buyers would be approved for financing for your type of business, potential terms, and deal structure. You will also get a Letter of Prequalification you can present to qualified potential buyers.
Prequalified financing helps you get better control of the deal. A good idea is to encourage the buyer to utilize the financing that you have already secured so you will not be kept waiting while they hunt elsewhere. The longer you have to wait the more chance you have to lose other good buyer prospects if the deal falls through.
What is usually required to get your business prequalified?
- Usually less than an hour of phone time answering questions about your business
- The recent three years of your companies tax returns
- The recent three years of your companies financials such as profit & loss statement and balance sheet
- Interim financials for the current calendar or fiscal year.