How you choose or can finance a business acquisition is a threshold question in your entrepreneurial pursuits. One alternative lies with a U.S. Small Business Administration loan. The agency does not directly loan to you, but backs lenders under the program. The standards for getting a Small Business Administration loan to buy a local business combine regulations and the preferences of the lender. Below are a few of the key considerations in whether you may qualify.
Credit Scores
Generally, you will need credit scores of at least 680 to qualify, though some lenders may accept scores between 620 to 650. If you’re score falls around 680, it means that you generally fall on the borderline of the “good” category. Potential lenders see that you have not been at least 60 days late on a payment, but you may have other issues that prevent your score from being higher and qualifying for conventional business loans.
Having a Personal Stake
Even if you do business in the name of a corporation or limited liability company, your credit score still matters. This is because the Small Business Administration requires owners of at least a 20 percent interest in the business to guarantee the loan. In a guaranty agreement, you stand responsible for the debt along with the business and the creditor can sue you for the unpaid balance.
The Small Business Administration assures that you have a personal stake through minimum equity requirements. Generally, at least ten percent of the purchase of the business must come either through your own money or through a seller note or financing.
The Collateral
When you are evaluating local businesses for sale, consider the type, condition and value of the collateral. These are assets that secure your repayment obligation under the loan, so that the lender will use them to recoup the outstanding balance if you default. Collateral can include:
*Land and buildings (real estate)
*Computers
*Machines
*Accounts receivables (amounts owed to the business
*Vehicles
*Other equipment
To that end, the lending process may involve an appraiser qualified to render opinions on the value of the assets. A higher valuation may be you are more likely to qualify for higher amounts.
Learn More
Finding local businesses for sale doesn’t have to be a daunting task. Explore with us your options for financing the purchase, including a Small Business Loan. We can answer your questions about qualifying for such a loan.
