The SBA is well-known for its popular 7a and 504 programs, which help fund equipment and real estate purchases for small businesses. They allow companies that would normally have trouble accessing traditional long-term business loans to get the financing that allows them to succeed. As part of their mission to encourage growth in local economies, the administration’s programs also provide SBA loans for the acquisition of existing small businesses.
Like with the other long-term loans offered by the administration’s programs, there are restrictions. The company must have healthy financials at the time of the sale, and there are income restrictions on its earnings. Companies that make too much will need to be financed through a different program like a traditional acquisition loan. If the company you want to buy meets all the requirements for the loan, you will still need to plan on a down payment worth about a quarter to a fifth of the total value of the purchase.
Applying for the loan will require a business plan just like any other business loan. That means you’ll need to identify the company’s current financial state and work with the seller to get the information you need to make accurate projections about the effects of the changes you will be instituting in your marketing plan. If the business is healthy, the changes don’t need to be extensive. Your marketing plan just needs to be your own, and it needs to be convincing. SBA loans also look at social factors like how much your business contributes to the local economy. Keeping a thriving local business in place is a priority for the administration, especially if it is providing the community with jobs.
Acquisitions with these loans enjoy the same low interest rates and long repayment terms you see in other flagship SBA loan packages, because they are an extension of the same program that allows you to access equipment. That also means they come with many of the same repayment restrictions. These restrictions apply mostly to the first decade of the loan, and they are designed to encourage reinvestment and growth by discouraging the early repayment of the loan. The result is low overhead on your purchase, making it easier to achieve a return on your investment in those early years.
SBA loans are designed to keep small businesses thriving by providing them with the tools to compete in a world that caters to much larger companies. If you’re buying a small operation in your community, take a look at the options available through the administration.