SBA 7(a) Loan to Buy a Business
Buying a business can be a daunting task. From finding the right business to purchasing it and then have a successful transition from the seller. Many buyers are finding SBA 7(a) loans as a key part of their strategy in buying the right business. The following is an overview of the SBA 7(a) loan and important considerations to keep in mind.
The SBA 7(a) loan is a government-back loan provided through banks and other financial institutions. The Small Business Administration (SBA) insures these loans if a borrower defaults, which reduces the risk for lenders. This loan can be used for a variety of business purposes such as working capital, refinancing debt, purchasing real estate, equipment or an existing business. The maximum loan amount is up to $5 million.
It's important to contact your lender for the most up to date lending requirements, but below are some general aspects needed to obtain the SBA 7(a) loan:
At least 10% down payment
Industry or managerial experience (to support a buyer is qualified to run the business)
Business is physically based in the United States
No delinquency on any existing debts to the U.S. government
A good credit score and credit history
Sufficient cash flow to meet debt obligations and sufficient working capital
Buyer's net income and tangible net worth is under SBA size requirements
Target business has been operating for over two years
Target business is in an SBA-eligible industry and is under SBA size requirements
The process to obtain the SBA loan can take between 60 to 90 days and requires a certain paperwork to get through underwriting. Below is a brief checklist of some items needed:
SBA loan application
Agreement to purchase the business
Personal background financial statement
Profit and loss statements
Business tax returns
Business overview and history
Business certificate and/or license
Schedule of inventory, machinery and equipment, furniture and fixtures
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Disclaimer: The information contained in this article is for general guidance only. The information presented should not be acted upon without the advice and guidance of a professional tax, legal, or financial adviser who is familiar with all the relevant facts.