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  • Writer's pictureCarrie L. Duvall, Broker

Buyer Be Ready! SBA Loans.

As of this writing, SBA Loan Programs for Small Businesses have more favorable conditions thanks to the Cares Act. Most SBA closing costs are waived and up to $9,000 on one's first two monthly loan payments are covered. Free money? Absolutely.


Great question! The Borrower (you) makes a loan application to the Lender (banker and bank). The Lender facilitates the evaluation of your application (Are you credit-worthy?) and then evaluates the financial position of the business you intend to purchase. Once the Lender deems you and the business worthy, they submit a "loan package" (the documents and financial reports assembled) to the SBA. The Lender actually MAKES the loan to you while the SBA operates like an insurance company for the Lender, guaranteeing the loan performance. If you default on your SBA guaranteed loan, the SBA pays the bank the amount remaining on your loan up to the agreed percentage.


From experience, your broker has learned that having a buyer pre-qualified is important for

three reasons. First, when the right business is identified, the buyer is able to promote his/her pre-qualification in their offer. Secondly, a buyer willing to take the steps to be pre-qualified shows the broker that the buyer is serious about buying and not wasting any one's time. Lastly, you save time by having pulled together most of what the bank needs to make a decision. Something you can count on is that there is always "one more thing" the bank needs, over and over again.


The SBA and most lenders count on the Five C's of Eligibility. The documentation you will be asked to provide and complete support one or more of these C's.

CAPITAL A buyer needs cash for closing costs and working capital going forward. A cash investment is personal stake in the success of your business. Your banker/lender will describe the best SBA loan type and the down payments required. Many business buyers use their 401(k) for financing or providing themselves unsecured loans.

CREDIT Lenders will check your FICO score. A 700+ personal score is typically the minimum requirement for SBA Loan approval. Credit events like a recent bankruptcy can have a negative impact on your application.

CAPACITY Capacity is evaluated once a buyer has an accepted offer and the business is under Lender review. Can the business generate enough income (cash flow) to repay the acquisition loan and other business debts. The Lender will evaluate your income (including spouses, if applicable), and the anticipated income from the business target. If you are starting a new business, your Lender may put more focus on your existing and continuing outside income. If you’re purchasing an existing business, the Lender will collect and evaluate business’s tax returns, recent financials, and other supporting documentation.

CHARACTER Lenders consider personal and business character a backbone of how one will perform as a borrower. A Borrower's business experience in a similar industry to the subject business is definitely an advantage. A Borrower must also provide a personal history that may include child support payments, criminal convictions, military service, and recent arrests, and default on past credit.

COLLATERAL It is not unusual for the Lender to require collateral to "secure the loan" in the event of a default. Most often, a Lender will place a lien on your home if it has 20% or more equity. Occasionally, the Borrower may not be denied a loan in a collateral shortfall - This is a benefit of the SBA guarantee.


For Borrowers and Business Owners, click through for a helpful SBA Checklist.

  • A Personal History on an SBA Form 912

  • A Personal Financial Statement SBA Form 413

  • Borrower Information SBA Form 1919

  • Three most recent years Personal Tax Returns

  • Three years tax returns for business(es)

  • Updated resume

  • Proof of Funds (cash for closing & cash flow)

  • Lender's Loan Application

Also, the Lender may require these up front or at a later time:

  • Mortgage statement (personal residence and other property owned)

  • Bank Statements - personal and business

  • Articles of Incorporation for entity buying the subject business

  • P&L and Balance statements for business(es) already owned by Borrower

Don't be surprised if the lending process seems endless and demanding. SBA guaranteed loans can take between 30 to 90 days to prepare. The more a Borrower can gather and provide up front, the faster the transaction will move forward once you've identified a business to buy.

Lastly, when you need support, reach out to your lender and Business Broker. In fact, introduce them! Consider these professionals part of your team.

We're ready to support your business acquisition journey. Call Carrie at (407) 476-4446 or email and get started today!

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