Selling your Business??--Get it Pre-Qualified!!

[Fernando Simo]

As I mentioned in one of my previous blogs, the Small Business Administration (SBA) has relaxed some of their policies in regards to lending. I said before that they “became a lot more flexible by making changes to the acquisition policies impacting purchases which included Intangible Assets. These changes give “Preferred Lender Providers” (PLP) more flexibility to provide business loans WITHOUT going through the SBA for final approval. In addition to providing PLPs with greater flexibility, the changes give buyers more leeway in what regards the minimum amount of equity they must invest for the project.” So, how does this benefit sellers and buyers?

Well, sellers whose businesses: (1) have good financial records (normally three (3) years worth of tax returns) ; (2) generate enough cash flow to cover the repayment of the SBA loan AND the buyer’s life style and; (3) are selling their business for at least $300K, may get lenders to Pre-Qualify their listing for an SBA loan. Note: I used the $300K, because most lenders like to provide loans in excess of $250K coupled with equity investments of between 15-25%--which may include seller’s financing. Sellers benefit because when a business is Pre-Qualified, it increases its market potential—more buyers are now able to afford the purchase of the business. Additionally, sellers normally get 100% of the sales value at closing. I recently sold a business within two days after it got pre-qualified.

Now keep in mind that the pre-qualification applies to the business NOT to the buyer!!! Buyers must qualify on their own merits to get the SBA loan to purchase the business. This normally means having good credit, some level of expertise in the business being bought, submission of personal financials (net worth) and the ability to personally guarantee the loan. The buyers benefit because they do not have to sell the merits of the business to the lending organization—the business has been pre-qualified.

So, if you are a seller, ask your business broker to look into pre-qualifying your business for an SBA loan. It may help you in more than one way.

Should you want to know more about buying or selling a business in Orlando or Central Florida, please contact Fernando Simo at 407-361-8886, email me at [e-mail] or please click here for more information.