Why So Many Buyers Use SBA Loans
For deals under about $5 million, three kinds of money show up most often: cash, seller financing and SBA backed loans.
The SBA 7(a) program can lend up to $5 million, and because the government guarantees part of the loan, banks will lend against a business's cash flow rather than only its hard assets.
That lets a capable manager or a first time buyer reach for a company they could never pay for in cash. It widens your buyer pool a great deal.
The Lender Reads Your Books Too
An SBA lender does its own underwriting. It wants to see that the business's proven cash flow can cover the loan payments with room to spare. Expect requests for:
- Business tax returns for the last three years
- Year to date profit and loss statement and balance sheet
- A list of the equipment and other assets being sold
- Your lease, or a commitment to a new one
- Your recast cash flow, with backup for each addback
If your returns show less profit than you claim, the lender lends against the returns. This is where unreported income hurts most. A buyer may believe you. The bank won't.
The Appraisal Can Cap the Price
Lenders often order an independent business valuation. If it comes in below your agreed price, the loan shrinks.
The gap then gets closed by the buyer adding cash, you lowering the price, or you carrying more of the price as a seller note. A realistic asking price up front avoids most of this.
Seller Notes in an SBA Deal
Many SBA deals include a seller note, where you lend part of the price to the buyer and get paid over time. Lenders set rules on these notes. Sometimes part of your note can't be paid for a period after closing, so the bank gets paid first.
Ask the broker and your attorney to explain the terms before you accept them. A note is real money you are waiting on, and it keeps you tied to how the business does.
Transition and Your Role After Closing
SBA buyers usually want a clean handoff. Expect to stay for a training period, often weeks to a few months, to introduce customers and staff and show the new owner how things run.
That is lighter than a private equity deal, which often asks the seller to stay for years.
A noncompete is normal. Your attorney will draft one that fits Georgia law and the deal.
Timing Runs Longer With a Lender
From the day you engage a broker to closing, seven to nine months is typical. Lender underwriting, the appraisal and the closing conditions take up a good share of the second half.
Keep running the company hard the whole time. A slipping quarter in the middle of underwriting can reopen the price.
Getting Ready for This Kind of Buyer
Clean, matching books do most of the work. Our page on business valuation before you sell covers recasting, and the selling process page shows where the lender fits in the timeline.
The lender will also want proof that Georgia taxes are current. See the TSD-10 tax clearance guide. To find out what your company could sell for, send the form or call (404) 555-0139.