Using an SBA Loan to Buy a Business
SBA loans have major advantages for those looking to buy a business. It is one of the smartest financing options out there. SBA financing is one of the best sources of debt for both a lender and the borrower. Below we discuss the benefits of obtaining an SBA loan when buying a business.
What is an SBA Loan?
The SBA loan program helps small business owners obtain financing to start, grow, or buy a business. The United States Small Business Administration (SBA) offers these loans indirectly through partnering lenders. SBA lenders can include banks, credit unions, and other financial institutions.
If you are seeking financing through an SBA loan but don’t know where to start, Peak can help. Peak Business Valuation works with dozens of SBA lenders across the country. We are happy to connect you to a lender who services your industry and can help meet your business’s financial needs. Schedule a free consultation today to get started!
Benefits of Using an SBA Loan
Below are just of few of the benefits of obtaining an SBA loan to buy a business. These same benefits apply to individuals looking to gain access to capital to grow a business.
Low Down Payment
First, the down payment for most SBA loans is typically much lower than other types of loans. Depending on the type and amount of financing, the lender will require a down payment or capital injection. The down payment on average is around 10 percent of the loan amount or purchase price of the business. The down payment will also depend on the amount you are borrowing, the purpose of the loan, the type of SBA loan it is, and your own financial profile.
Increased Buying Power
Due to the low down payment required for an SBA loan, your buying power can increase. For instance, the SBA loan you seek requires a 10 percent down payment. This means if you have $70,000 cash to put toward the down payment you can potentially buy a business that is worth $700,000.
Low-Interest Rates
Next, SBA loans offer some of the lowest interest rates for small businesses that qualify. The average interest rate for an SBA 7(a) loan is around 6.00 – 7.00 percent. Non-SBA loans for businesses typically have much higher interest rates. The interest rate for an SBA loan to buy a business will depend on the borrower’s creditworthiness and the qualifications of the business.
Higher Loan Limits
When using an SBA loan to buy a business, the SBA guarantees a portion of the loan. This reduces the risk for SBA lenders. As such, lenders can more generously lend to small businesses. The SBA 7(a) loan program allows an individual to borrow up to $5.5 million.
If the loan is greater than $250,000 the lender is required to obtain a business valuation. Peak Business Valuation provides SBA business valuations for lenders throughout the U.S. We are happy to provide your lender with the SBA business valuation. We can also connect you with an SBA lender who services your industry and/or lends for your business needs. Set up a consultation to get started.
Term Lengths
Term lengths for SBA loans and specifically SBA 7(a) loans can vary. Common term lengths can range from 10 years up to 25 years. Most SBA loans have flexible repayment terms that make them affordable for small businesses and for buyers of businesses to repay. This also allows the lender and borrower the flexibility to customize a repayment plan that is payable as the business grows. For individuals looking to get a long-term loan, SBA loans are one of the least expensive financing options.
Access to Free SBA Resources
Last, if you are a first-time business owner or new business owner there are numerous resources to take advantage of. The free resources offered through the SBA can be invaluable. For all SBA loan borrowers, the SBA offers free training, mentoring, and counseling to small business owners. There are more than 950 small business development centers available to small business owners across the country. Small businesses also have access to state and local SBA offices throughout the United States. These offices host seminars, courses, and networking events to help connect small business owners. For individuals looking to buy a business and use SBA financing, these resources can be extremely helpful. These resources and programs are available to all small businesses despite whether the business receives approval for an SBA loan.
Summary
SBA financing is one of the smartest ways to finance a business purchase. Using an SBA loan can widen your ability to find a business that is a good fit not just one in your cash budget. With an SBA 7(a) loan you also have the ability to use the funds for almost anything. This includes buying the business, equipment, inventory, and working capital among other uses.
Peak Business Valuation provides SBA business valuations for dozens of lenders across the United States. As such, we have in-depth knowledge about the process of obtaining an SBA loan to buy a business. If you have questions about obtaining an SBA loan to buy a business give us a call. We are happy to chat! Set up a free consultation by clicking the link below.
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