What’s Involved in Financing the Sale of Your Business
Generally, there are three sources of funding for the sale (purchase) of a business, 1) an SBA loan or 2) a Seller Note or 3) cash. The combination of SBA financing, a Seller Note, and a buyer cash down payment is used quite frequently.
While every business owner’s dream is to sell their business for “cash”, few transactions are sold for all cash, other than small Mainstreet businesses that do not qualify for SBA financing. With that said, is it possible to get all cash at closing for the sale of your business? The answer is yes if it qualifies for SBA financing.
SBA lenders will finance up to 90% of the business acquisition with an SBA 7a business acquisition loan. With SBA financing, a buyer can acquire a business with just 10% cash down, and 90% of the purchase price is financed over 10 years, at a maximum interest rate of Prime + 3.0%, with most lenders offering rates below the maximum. The low down payment of just 10% opens the pool of prospective buyers to many more buyers and improves the buyers cash flow. More importantly, it results in ALL CASH AT CLOSING for the seller!
SBA financing is the preferred method of financing at Pacific Business Sales and 90% of our transactions utilize SBA financing. We have long-term and close relationships with a select group of SBA PLP (Preferred Lending Program) banks we work with on our transactions. We obtain Pre-Qualification letters from our SBA lenders for the businesses we represent, demonstrating to prospective buyers they can obtain SBA financing to acquire the business with just 10% down! Pacific Business Sales is a licensed California Business Broker.
SBA Financing FAQs
Why SBA Financing is a Great Deal for Buyers & Sellers
We love SBA financing for a number of reasons, first and foremost, the SBA will finance up to 90% of the business acquisition (if it qualifies). This means a buyer can purchase a business for just 10% down and finance the rest over 10 years. With a 10-year term and a low-interest rate, this improves the Net After Debt Service cash flow making the business very attractive for acquisition prospective buyers. The low down payment of just 10% also opens the pool of prospective buyers to many more buyers.
As an example, a buyer purchasing a business for $1,000,000 would be able to buy it with just $100,000 down and the seller would get $1,000,000 at closing (less closing costs). In many cases, the SBA lender may require the seller to carry a small seller note of 10% of the transaction value resulting in the seller receiving 90% of the transaction value at closing (less closing costs).
This financing structure puts the business within reach of more buyers and makes it much more attractive than businesses with no SBA financing, requiring all cash, or Seller Financing which is more expensive and leaves the seller with little cash at closing and collecting the rest over 3 to 5 years or more, not to mention the risk of collecting on an unsecured seller note.