Using an SBA Loan to Buy a Business

Using an SBA Loan to Buy a Business

The Small Business Administration’s (SBA) Loan Program is a popular route for a buyer to finance the purchase of a business. Transworld Business Advisors is highly familiar with the SBA loan process and has quality, local partners working for SBA preferred lenders across the state that we can connect prospective buyers with. In the coming article we will briefly describe what a buyer can expect when looking to use an SBA loan to finance the acquisition of a business.


First things first, what is an SBA loan? An SBA loan is guaranteed by the US Small Business Administration. This guarantee represents the portion of the loan that the SBA will repay to the lender should a buyer default. When identifying a lending partner for an SBA loan, Transworld recommends always working with lenders designated as an SBA preferred lender. These lenders have pre-approval by the SBA to work with SBA guaranteed loans and can generally deliver a much better process to their clients.


At the start of the loan process, a buyer will present their acquisition to the lender and they will review the buyer and the business in question for pre-approval. The lender will look at the financials of the business to determine if the cash flow will be sufficient to cover the debt service of the loan. They will then review the buyer’s personal financials to determine whether they qualify for the requested loan amount. Once the prequalification requirements have been met, the lender, buyer, broker and seller will work together to move the transaction forward.


To move forward the lender will obtain proof from the buyer that they have the personal funds to support the transaction, that they have obtained insurance for their business, they will need to collateralize the loan, and put down at least 10% equity. Finally, the seller of the business will be required to carry a portion of the loan to serve as a form of security showing the lender that all parties are invested in the success of the transaction.


To learn more about how to finance the purchase of a business or more about the SBA loan program, we invite you to schedule a free consultation with a business broker or visit our website today!


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Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!


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