SBA (7a) Loan – FAQs

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.

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