Many of our client’s have asked the following questions:
Q: What are the borrower criteria to obtain an SBA loan?
A: Buyer must have three things in order to obtain the SBA loan:
- Strong resume
- Required funds in his own name
- Excellent credit
Q: What is the required down-payment for an SBA loan?
A: Buyer must have a minimum cash injection of ten percent (10%) of the total project costs. A Seller carry-back note can be credited up to a maximum of fifty percent (50%) of the Buyer’s cash injection requirement.
Q: Will the borrower be required to pledge his residence as collateral for the SBA loan?
A: If the borrower has more than 25% equity in his personal residence or rental properties, it must be pledged as collateral.
Q: Are stock and bond portfolios required to be pledges as collateral?
A: No, stock and bond portfolios are not required to be pledged by the SBA. However, individual lenders may require this.
Q: When can the Seller begin receiving payments on a seller carry-back loan?
A: The seller carry-back note must be on standby for the entire term of the loan. Interest can accrue but cannot be paid to the Seller while the SBA loan is in place.
Q: How long can the Seller be employed by the Buyer post-closing?
A: The Seller can work for the Buyer as a consultant for a period not to exceed 12 months.
Q: When is a business valuation required?
A: If the purchase price of the business is more than $250K, a third-party valuation must be performed.
Q: Does the valuation have to exceed the sales price of the business?
A: No, the valuation must exceed the loan amount.
Q: Is a minority partner required to personally guarantee the loan?
A: If minority partner has less than 20% ownership and has no operational responsibilities, no loan guarantee required.