Olivia Kim is a small business financing expert and has now been at Guidant Financial for 5 years. She has led her External Financing team for a majority of that time and primarily specializes in consulting clients on SBA loans when it comes to business financing solutions. She has successfully helped numerous clients get funded through SBA, with loan amounts ranging from as low as $50,000 to as high as $3 Million, so she knows a thing or two about this stuff! Today, she will go over what sellers can expect if they have buyers going through this process.
Quote: “Tax returns are key. I can not emphasize this enough.”
Who is Guidant Financial?
What is an SBA loan and what are the rules around SBA loans?
SBA loans are small business loans that are guaranteed by the Small Business Administration. They are government backed product so there are a lot of rules and regulations.
• Must be U.S. based business
• Loan range is $25K – $5m
• Business cannot be passive
• Borrowers must bring in a minimum of 10% Equity Injection
• Borrower must be a U.S. Citizen, or have a green card
• Borrower cannot have caused loss to the government
By injecting a minimum of 10% cash into the business it shows lenders that the borrower is committed by having some skin in the game.
What are the SBA benefits for Sellers?
• Borrowers must meet certain standards to qualify for the SBA loan. This saves the seller from wasting time with unqualified borrowers.
• The application process doesn’t require much initial work from the seller.
• Fees associated with the SBA loan is the buyer’s responsibility.
• Seller gets paid upfront for purchase price.
How to pre-qualify your business for an SBA loan?
There is great value to getting an SBA pre-qualification letter. Highly recommend this.
Pre-qualifying Your Business
• Getting a Pre-Qualification letter from a lender can increase chances of selling your business.
• Lenders will need financial information to issue a Pre-Qual letter. Tax Returns are key, or Profit & Loss statements, Balance Sheets, and etc.
• Getting a Pre-Qual letter doesn’t mean an automatic approval. The buyer also needs to look good and qualitfy.
• You can go the extra mile and get a Certified Appraisal to get an accurate reading of what your business is worth.
It’s important to note that getting a pre-qualification letter doesn’t automatically mean that the deal is done, but it can really help speed up the process.
What is a typical deal structure?
For business acquisitions, the average Equity Injection the Buyer is responsible for is 20%. The maximum loan amount is $5m.
SBA are typically 10 year terms loans.
What are other important criteria to get a loan approved?
• Access to financial information on the business. Tax Returns are key.
• The business must have adequate historical cash flow, and no signs of significant losses year over year.
• Satisfactory personal credit score & histories for all guarantors of the loan – this being the buyer(s).
• No recent bankruptcies, foreclosures, or misdemeanors & felony charges.
Quote “No lender is going to go in blind to approve a loan without seeing how the business itself is doing.”
SBA are a very powerful tool for both buyers and sellers. It helps buyers achieve their dreams and sellers move forward with their next business venture.
If you would like to find out more about SBA loans and connect with Olivia you can do so using the details below: