The Small Business Administration (SBA) continues to be the primary source of financing when buying a business in Texas.
Technically speaking the Small Business Administration loan is not a loan but actually a guarantee to a bank who actually provides the loan. It’s commonly referred to as an SBA loan due to the standard regulations imposed on banks who offer loans under the SBA program ( known as a 7A or 504 loan).
In today’s market an SBA Loan for the purchase of a business that doesn’t have real estate as part of the sale ( the business is typically located in a leased space) will generally have the following terms:
10 year amortization
Interest rate of 2.75% over the prime lending rate, adjusted quarterly
Buyer down payment equal to 15 – 25% of total business purchase price
Bank will likely add adequate working capital to the loan for business operations
The bank will have substantial due diligence requirements. Both the buyer (borrower) and the business (seller) must be able to pass the banks due diligence requirements. The bank will want all business financial information to be correctly stated on the business tax returns.
The bank will also want the buyer to me certain requirements regarding credit score, no problems with student loan payments, no issues with child support or alimony payments, clear history of any criminal issues.
A very important element of getting approved for an SBA backed loan is the banks comfort level with the buyers ability to succeed in the business they buy. A core element is known as buyer’s “applicable skills”. Basically this means what in the buyer’s experience can be applied to the new business.
Most small businesses that sell for under $1,000,000 are purchased by individuals who will own and operate the business on a day-to-day basis. These SBA Loans are rarely used for “passive” investments.
Mr. Elliott is Managing Director of Sunbelt Texas Business Sales & Acquisitions with more than 20 years experience in mergers, acquisitions and business broker. Mr. Elliott purchased Sunbelt Houston in 1996 and has managed the sale of over 500 companies from very small businesses to companies with revenue of more than $30,000,000. Mr. Elliot has provided Business Broker and merger and acquisition adviser services to privately held business in Houston, Austin, San Antonio and throughout Texas.
Over a 20 year career, he has handled a wide range of industries including manufacturing, distribution, medical, machining, construction, and contractors. Mr. Elliott has completed transactions with Private Equity Groups, strategic buyers and a wide range of regional companies executed plans to grow through acquisitions.
Mr. Elliott has been recognized as a “Thought Leader” by Sunbelt Business Brokers Global Network. Mr. Elliott is frequently interviewed in various media and is considered an expert in the field of buying and selling privately held businesses.
Mr. Elliott has received the professional designations of Certified Business Intermediary (CBI) and Master Merger & Acquisitions Intermediary (MMAI).