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Business Acquisition financing options can appear overwhelming with many entrepreneurs considering Small Business Administration loans as a viable solution. The program, developed in the 1950’s, was created to provide a government guarantee, limiting the risk of a lender. The guarantee further promotes unsecured transactions promoting the support of these transactions. The key to an SBA loan is determining your eligibility while adhering to the regulations to take advantage of the terms and conditions that are favorable.

SBA defines a business acquisition as a Start-Up with special circumstances. Considered a start-up venture as the company has less than two historical tax years under the new ownership. Special circumstances is the growing concern/goodwill in purchasing a company that is based on historical cash flow versus a grass roots start-up without any customers/clients. SBA allows this type of transaction without real estate to be amortized over 10 years securing the longest and usually the lowest payment without sharing ownership.

Cash flow is the most important analysis both of the existing operations while taking into consideration conservative add-backs such as interest, depreciation and existing owner salary along with future consideration of buyer projections. The two-pronged approach is required by SBA and is completed for the company stand alone as well as globally.

Global cash flow is required by SBA at 1.15x which takes into account a buyer’s required living and any affiliate companies both historical and projection. Another component to global cash flow includes reviewing the credit, cash position and character of the borrower. Ultimately determining if a business can support the buyers existing expenses/lifestyle while satisfying debt and holding a profit. Coinciding with this equation is determining transferable experience of the buyer commensurate to operate the business, reason for sale and overall how the company has and will perform under new ownership.

Lastly the SBA differs from other lending options by requiring a lender to consider personal collateral of real estate owned by the borrower to secure the loan if available. Although a loan cannot be declined  for not having collateral; the SBA requires a guarantor to be all in equally to the government.

While it seems overwhelming to know the little bit that has been reviewed, there are many other rules and regulations in relation to obtaining an SBA loan. The best way to assist your process is to be transparent and find a lending partner who is equally as transparent. A lender should have experience personally and be with an experienced team, share the process and be a trusted advisor in the process of obtaining a loan and obtaining referrals to assist the success of the loan and future of the company.

Interview your lender, ask how many loans they review and close. What is the success rate of your transaction type and how involved will the lender be in the process? Other areas to consider include banking relationship requirements, ancillary products required or offered and determining if you can build a trustworthy relationship with the lender.

This article was written by Denise Clemence, SBA Queen. Denise has been lending since 2004 with over 100MM in funded loans nationwide for businesses in all stages. Customer testimonials have highlighted her consultative approach, involvement in submission through closing process and creative structuring of loan proceeds. She believes in quality versus quantity and prides herself on communication. or 813-714-3960