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Small Business Administration loan improvements
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The U.S. Small Business Administration has been a major force in guarantying loans for business start-ups, business expansion and asset lending for many years. However, the past year plus, they have been ratcheting back lending on small business loans due to the recession.
Recently the SBA has finally brought back their “7A Loan Program” (general purpose business loans for start-ups and existing business loans) and their “504 Loan Program” (real estate and equipment loans) with more reasonable requirements. Starting October 1, 2009 the SBA once again is allowing lending on goodwill in a business acquisition loan. For any transaction where goodwill exceeds $500,000 the SBA requires a 25% equity (cash) infusion.
This is the first step on a long road back to “normalcy”. Banks are beginning some activity on transactions over $1 Million. However, it has been painfully slow in recent months and will require borrowers to visit more banks to find what they are looking for. And, borrowers must be very prepared to present the required information in a timely manner, and buyer and seller must be prepared to have patience through the entire process.
There are still many more banks on the sidelines than there are those that are actively pursuing loans. Every bank is different in the way they assess a businesses’ value and their risk in a transaction. The SBA does not dictate the banks’ underwriting guidelines, so it is still the banks’ decision whether or not to approve each loan.
For more information contact the author of this article.
Related articles: "Financing options when selling / buying a business", "Selling your business, step by step", "Considerations for valuing your business for sale" and "Recast financial statement to maximize the value of your business".
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