The goal of the SBA is to stimulate small business economic growth, which includes the transfer of small business ownership. FastwaySBA provides small businesses with SBA Acquisition Loans and there have been some recent new guidelines set forth. With these new rules, a Buyer of a business has the potential to put Zero Money down, if the Seller holds 10% of the purchase price as a loan that the Buyer will pay off in the future.
In acquisition deals, it is common for the Seller to hold a note and be paid back over time by the new Owner. SBA acquisition loans required a minimum cash injection of 10% from the Buyer. This ensures that there is some ‘skin in the game’ from the Buyer. If the Seller was to hold a note and essentially finance a portion of the purchase price, the old standard was that, up to 5% of the purchase price could be covered by the Seller holding the note and the buyer would only have to come up with an additional 5% down. So essentially the 5% from the Seller holding a note would satisfy up to 5% of the Buyer’s cash down amount.
Now this rule for Seller financing covering the Buyer cash down requirement has changed to 10%. This means that if the Seller holds a note, 10% can be earmarked for the Buyer’s cash injection. This in effect can mean that the Buyer could qualify for zero money down to purchase the business.
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This Seller note would be on standby for a minimum of 2 years, at which time it would need to start being paid off. The structure of this Buyer’s financing is not set forth by the SBA lender, but negotiated prior between the Buyer and Seller. The debt servicing of this note in the future does factor into the underwriting criteria of the deal.
The reason the SBA has done this is because they want the Buyer to preserve their working capital when they first start operating their recently acquired business.
If you are selling your business, FastwaySBA can provide you with an understanding of how to offer the best SBA Acquisition loan to a potential Buyer. If you are interested in purchasing a business, apply here for an SBA Acquisition Loan.
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