When you’re looking to start a business, there are many different factors to consider. Ensuring you have dedicated employees, suitable systems in place, and that you have the financing to get things started are just a few of the concerns you’re likely to have. What many people don’t realize is there’s another way to become a business owner. The benefit of buying an existing business is that you get to take over an established, (hopefully) reputable business. In contrast to starting a new business from scratch, buying an established business allows you to take advantage of the existing client base, revenue and profit momentum, and the goodwill of the previous owner. So how can you buy a business? How do you finance that? There are many options available when it comes to financing a business acquisition. But often, the single best option is an SBA 7(a) loan (for small businesses). This option has low down payments, minimal collateral requirements, reasonable rates, and flexible terms that enable borrowers to position themselves for success.
What is an SBA 7(a) loan?The SBA is the Small Business Administration, which provides loans and other financial services to help small- and medium-sized businesses operate, get started, or expand. The 7(a) program gives companies low-cost financing for: purchasing another business; purchasing, refinancing, renovating, or constructing owner-occupied/operated commercial real estate; purchasing equipment, inventory, furniture, fixtures, and other business assets; refinancing business debts; buying out an existing business partner; making leasehold improvements; general working capital; and so forth. This loan program is designed specifically for small businesses and will help you get your new venture off to the right start with low-interest rates and extended repayment terms. SBA 7(a) loans are often much more attractive than traditional bank loans. Not only are they often easier to qualify for, but when you work with an experienced lender, they’re a specialized loan product that can be customized to provide exactly what your business needs.
Terms of SBA 7(a) Loans and QualificationsTo qualify for an SBA 7(a) loan, applicants must meet specific criteria:
- The applicant must own or be looking to a buy a US-based, for-profit, non-publicly traded business.
- Ownership must generally be comprised of 51% U.S. Citizens or Legal Permanent Residents.
- The applicant cannot have more unencumbered, non-retirement, liquid assets than the loan amount they are seeking (equity in real estate is not considered for this determination).
- The applicant must ensure that all funds will be used exclusively for business purposes.
Benefits of an SBA 7(a) Loan Over Traditional Bank Financing
- Much lower down payment is required, often half or a third as much, so you can keep more of your precious capital.
- Longer repayment terms mean lower monthly payments, so your monthly cashflow isn’t negatively impacted.
- Competitive interest rates also mean lower monthly payments.
- No loan covenants or other strings attached gives you confidence in the stability of your financing and peace of mind.
- You can apply for an SBA loan online, which means that you’ll get a decision quickly—usually within 48 hours!
- Working with a specialized lender means you’ll receive a specialized loan tailored to your business’s needs instead of being an inexperienced bank’s guinea pig.