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Financing Small Business Acquisitions: Unlocking Opportunities with SBA Loans

By Gal Barzilay

Financing Small Business Acquisitions: Unlocking Opportunities with SBA Loans
Financing Small Business Acquisitions: Unlocking Opportunities with SBA Loans

In this article, we'll explore the benefits of SBA loans and how they can facilitate the acquisition process, opening doors to new horizons in the business world.

Embarking on a new business venture by acquiring an existing company can be an excellent path to entrepreneurial success!

However, a lack of capital should not deter you from seizing these opportunities.

Serial entrepreneurship and the option to secure financing through Small Business Administration (SBA) loans provide a lifeline for those seeking to make acquisitions.

Let's start by understanding the SBA:

The SBA is a federal agency dedicated to assisting small businesses in obtaining loans. While they don't directly issue loans, they work with lenders to overcome lending obstacles by guaranteeing loans, reducing risk, and sourcing capital. This support fosters competition and diversity within the US economy, making it easier to qualify for an SBA loan.

Why choose an SBA loan for acquisitions?

  1. Better Rates: SBA loans offer competitive interest rates, often below 8%. As a federal agency, the SBA enforces responsible lending and risk management, allowing lenders to charge lower rates and fees. This reduces your exposure to predatory lending practices, ensuring affordable monthly premiums over the loan's term.

  2. Better Terms: Since the SBA guarantees a significant portion (up to 85%) of the loan, the risk is shared between you and your current business. This means you can make a lower down payment, usually less than 10%, and collateral may not always be required for loans under $350,000. However, a personal guarantee to repay the loan in full is necessary.

  3. Support and Guidance: The SBA can provide valuable assistance throughout the acquisition process. From due diligence to legal procedures, the SBA offers counseling and learning resources to support your journey. They have a vested interest in your success, ensuring you have the necessary tools to navigate the acquisition smoothly.

How to obtain an SBA loan for acquisitions:

To begin the application process, compile a list of SBA-approved lenders in your area. Visit the SBA website, enter your details, and utilize their matching tool to generate a suitable list. Remember, this step is not an application itself, and lenders on the list may not guarantee a loan.

When applying for an SBA loan, be prepared to provide the following information:

  • The desired loan amount and its purpose.

  • A comprehensive business plan, including post-acquisition plans and your justification for the acquisition.

  • Financial documents, such as tax filings, balance sheets, and profit and loss statements.

  • Demonstration of your industry expertise in both your current business and the one you intend to acquire.

  • Your credit history, as the SBA can consider applications with imperfect records.

  • Collateral details, specifying how you will secure the loan.

Remember these key points:

  1. Plan ahead, as the SBA loan process can be time-consuming. Start early to avoid losing out to other potential buyers.

  2. Interest rates for 7(a) SBA loans are variable. Be prepared for fluctuations in monthly payments over the loan's term.

  3. Negotiate with lenders on various aspects, including fees, repayment terms, collateral, and interest rates. Don't hesitate to seek favorable terms, particularly if you have a good credit rating.

Conclusion: If you're an existing business owner eyeing a new acquisition but lacking the necessary capital, don't despair. SBA loans present an excellent financing option. With their low-interest rates, fair repayment terms, and extensive support, SBA loans can help turn your acquisition dreams into reality. Explore the possibilities and unlock new avenues for growth and success in the business world.

Why did we build boosst?

It can be a very difficult process to buy or sell a business, both financially and emotionally. We built boosst so you would never feel alone in the process. We believe that we can empower founders and give them insightful data in order to create their future according to their terms.

Looking to sell your business? Check out how boosst can help.

Looking to buy a business? Check out how boosst can help.

Book a free call with our M&A team lead here > Click here.

About the Author

Gal Barzilay, Co-founder and COO of boosst. Gal is a former software engineer who has experience working with global banks and developing tech solutions for eCommerce brands such as Adidas, L'Oréal, and HP. She grew up with two parents who owned small businesses, when they wanted to retire, they couldn't find anyone to continue their companies.

Connect on LinkedIn > here

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