Update: Due to high demand for this program, please ensure you have these items submitted to your lender as soon as possible to account for any backup in underwriting:

• Letter of intent or purchase agreement signed by buyer and seller
• Tax returns for business (including 2019 or extension filing)
• YTD P&L not older than 60 days
• Personal financial statement from buyer(s)
• Tax returns from buyer(s)
• Resume of buyer (optional)

Webinar: How to Buy a Business with a CARES Act SBA Loan

As part of the CARES Act legislation, the SBA will cover all payments (principal, interest and fees) of new 7(a) loans for 6 months for loans closed by September 27^th.

Watch the following video to hear Bob House, President of BizBuySell, and Michael Baumann, Founder and CEO of YourSBA.com, discuss how this historic program may allow you to buy a business for effectively no money out of pocket.

How to Buy a Business with a CARES Act SBA Loan Webinar FAQ

The following are questions asked during the live webinar, with answers from Michael Baumann, Founder and CEO of YourSBA.com.

The SBA makes it easier for a bank to lend money by providing a guarantee to the bank for a large portion of the loan. Therefore, this reduces the risk for a bank when making a loan to a small business.

Because there is a reduced risk, and because the SBA is a highly regulated environment, the loan terms are more favorable with a lower interest rate - today the maximum interest rate is 6%. The typical loan term is for 10 years on a business acquisition loan. There is no prepayment penalty if you choose to pay off the loan prior to 10 years.

Most banks and credit unions are authorized SBA lenders. We work with a small group of large banks that are very active in the business acquisition lending space. The business acquisition loan is the most complex type of SBA loan so it's important to be working with a bank that knows how to get these done.

I like to call the 7(a) loan program the "Swiss Army Knife" program of the SBA. It is the most flexible program and is able to be used for buying an existing business, buying out a business partner, working capital to expand a business by purchasing equipment, hiring employees and pretty much any business use.

If a small business occupies more than 51% of a commercial building, the SBA 7(a) loan can even be used to buy the building with a loan term of up to 25 years.

Combining a business acquisition with a commercial real estate purchase can create a blended loan term of somewhere between 10 years and 25 years.

You can borrow up to $5 million with lower interest rates than any loans I know of. Recently, the Fed chairman indicated he was not thinking about or even thinking of thinking about raising the current Fed rate and indicated maybe raising rates in 2023. In addition, the down payment for a business acquisition can be as low as 10% per the SBA rules and the typical loan term for a business acquisition loan is 10 years.

I looked through every project we've been involved with for the past year or so and nearly every buyer had at least $70,000 available in cash or very liquid such as stocks, property being sold or something like this. This is not the time to be entering the business acquisition game if you don't have at least $70,000 available to you.

We specialize in loans over $350,000 where we look for at least 10% from the buyer. The lender might ask for more than 10% but there are ways we can accomplish both. Plan on at least 10% for franchise purchases. If you are looking for a loan of less than $350,000, plan on a 20% down payment.

There are always exceptions but I want to provide some general guidelines from practical world experience. I put the down payment sources in order of what I most often see. So, cash is king and is the most common source of down payment. Second is retirement funds. Followed by using equity in your home in the form of a HELOC or home equity line of credit. You cannot borrow the down payment for an SBA business acquisition but you can use the equity in your home. We also often see gifts from family and sometimes friends used as a down payment.

During these Pandemic times, I see banks look more at experience than I've seen in a while. Direct industry experience is best but a strong manager and key employees is helpful. With larger businesses, it is important to have strong managerial experience such as successfully running businesses or managing corporate teams and so forth.

Credit score is not technically a factor with SBA loans but a good credit character and personal history is important. A one-time blip in your credit from a divorce, the great recession or a medical issue can be overcome but not habitually skipping bills.

These are the 8 primary criteria for a business to qualify for an SBA loan.

• The business must be a small business by SBA standards which as a rule, is less than 500 employees and less than $25 million in annual revenue. There are exceptions to this and there is a table available on the SBA website.
• Must be a For Profit business and not a non-profit entity, such as a school as an example.
• Must be based in the United States.
• Must have a positive cash flow so that the monthly SBA loan payment can be made plus what the new owner takes out of it what is needed as a salary and so forth.
• The business must not have been dramatically impacted by COVID-19 and if so, must have a strong recovery plan. I've seen 1/2 of the business come through our platform having been negatively impacted by COVID-19 but 1/2 of the businesses have been performing well or even better during the pandemic.
• The business must not derive a majority of its revenue from lending money.
• The business cannot be in a federally prohibited business such as a hemp farm or cannabis related.
• The business cannot be in an adult oriented industry.

On March 27^th, the CARES Act was signed into law and allocated $17 billion to the Small Business Administration for the purpose of subsidizing SBA loan payments. The SBA will pay all loan payments directly to the bank, including principal and interest, for a period of 6 months. 6 loan payments forgiven, not deferred, but paid for you by the SBA. This program is for loans closed between March 27^th and September 27^th beginning with the first loan payment or within 30 days, whichever is earliest.

The following is based off a real transaction which closed just a short time ago:

• This business is an online business purchased for $450,000.
• The total project cost was $500,000.
• $450,000 for the business.
• $30,000 added to the loan for working capital. Working capital can be used for such things as rebranding, adding touchless payment systems, all sorts of things.
• $20,000 went to loan closing costs including the SBA guaranty fee, which is what funds the SBA loan program, and other miscellaneous fees to close the loan just like those fees you see when financing a house or a car.
• The total equity injection for this acquisition was $100,000. 10% or $50,000 from the buyer and the seller agreed to participate in the financing in the form of a seller note, on standby, for 2 years. The note is only on standby for 2 years not 10 years, in this case. The seller agreed to a $50,000 note with reasonable terms to the buyer.

This $500,000 project minus the down payment of $50,000 and minus the seller note of $50,000 leaves us with a $400,000 SBA loan. You can visualize the structure in the following table.

In this example, the business buyer will realize an approximate $116,700 gain over the first 6 months of ownership:

• The business cash flow is about $180,000 per year. Divide this by 2 to get six months of benefit, you get $90,000.
• The SBA will make 6 months of payments of $4,450 directly to the bank for the borrower. This is a $26,700 benefit.

Now, lets factor in what totals to be $110,000 in costs over this same period, one of which is actually a benefit to the owners bank account:

• The new owner is paying herself $120,000 per year which is $60,000 over the first 6 months.
• Also, there is that $50,000 cash down payment she just wired to the bank a few months ago.

Subtracting the $110,000 costs from the previously illustrated $116,700 gain, nets a positive $6,700 over the first 6-months of ownership. This essentially eliminates her initial down payment outlay.


What timeline should a prospective buyer keep in mind in order to take advantage of the CARES Act incentive?

This SBA stimulus is not going to be around forever. If you wish to close your loan before September 27^th, you need to find a business, make an offer, get approved for financing and close the loan - all before September 27^th. September 27^th is a Sunday so realistically before Friday, September 25^th.

I tell people it takes between 45 and 90 days to close a loan. Most lenders say 60 days. If a lender says less than 60 days, be cautious as there are a lot of moving parts to a business acquisition loan. Lots of documents from the buyer and seller asked for by the bank and closing team. Inevitable unforeseen delays as we're all human with things that come up. That said, the lender will work with you to close the loan as quickly as possible but plan on 60 days.

As such, my timeline illustration below is a little conservative but by the end of July you should be in the process with the lender. Find the business, sign the purchase letter of intent, get pre-approved for the loan, go through underwriting and closing. Close the loan by September 27^th.




What other comments do you have regarding the stimulus of the SBA 7(a) loan program from the CARES Act?

The CARES Act incentive is definitely driving deals. Remember, owners who have done well with their business and are selling to cash out, may also want to buy a bigger business and close their loan prior to September 27^th. So, these sellers are motivated to get the buyer moving.

I have found that the negotiations are going a little friendlier and faster when all parties are aware that the buyer needs to close the loan by September 27^th to take advantage of the 6-month loan payment forgiveness. So, the bickering back and forth over a few thousand dollars in inventory is not as important as getting into underwriting with a lender.

Owners who were close to retirement and really don't want to deal with post-COVID-19 requirements and uncertainty are taking advantage of this incentive to get the price they are hoping to get out of the sale of their business.


What happens if we enter into the process and the loan doesn't get closed by Sep 27^th, what are the opportunities to back out?

There are no new rules added by the CARES Act for the SBA to provide guidance to lenders for allowing buyers to back out of a transaction that is not on track to close by September 27, 2020. The lender will, most likely, refund any portion of a deposit sent to the lender that has not yet been spent.


Can we refinance an existing SBA Loan with a higher rate?

You cannot refinance an SBA loan with another lender for the purpose of reducing the loan interest rate.


Are SBA Fees covered by the CARES Act and if not, are they expected to be covered going forward?

The SBA Guaranty Fee is not being paid by the SBA. This is the fee that helps pay for the SBA 7(a) loan program. There are no publicized future plans to wave this fee.


Is a personal guarantee required for an SBA loan?

A personal guaranty is required for SBA loans for any person owning more than 20% of the business entity.


What is the interest on this SBA loan?

WSJ Prime + 2.75% which, as of the webinar, is 6%. This is the maximum interest rate that can be charged by a lender.


Are any banks still doing PPP loans?

PPP loans are not part of the SBA 7(a) loan program and they are still available as of June 18th. I would recommend checking with your primary business bank before looking for an alternative bank.


Is there a requirement on how old the business that you are buying has to be?

There is no SBA rule but lenders like to see at least two years of solid financial performance. If a business is less than two years old, plan on needing at least a 30% down payment to cover more of the lender's risk.


Can multiple companies be bought with one loan?

Yes, but be prepared to explain how more than one business will be managed properly during an ownership transition. An example of a good multiple business purchase, two that we have in process now, are: Multiple FedEx routes from 3 sellers. A liquor store along with a supplier owned by a different seller.


How does the SBA treat businesses in seasonal tourist areas?

The lender will average out the cash flow to be certain loan payments plus owner benefit, such as salary, can be paid.


Are franchise acquisitions eligible for this loan?

Yes. There is a guide available to lenders of which franchises perform well and which have a high failure rate. A franchise with a low failure rate can be a great SBA loan.


Are there special benefits or incentives for Veterans and Minorities?

We do not know of any at this time.


What does the SBA define as "experience in the industry" For example, I've worked in mortgage industry, would this preclude me from buying a paving business?

Industry experience is experience within the specific industry you are targeting. For example, the owner of a paving business may be very familiar with the business if she worked for a supplier of paving businesses. It is important to note that experience managing a small business or a team of employees is also great experience for an SBA business acquisition loan.


What documents are required for loan application from the buyer and what documents/financials are required of the seller?

After completing the BizBuySell Finance Center form, you will begin to receive requests for information to build a personal financial profile then the following documents will be requested to continue the process: Business tax returns for the last 3 years, P&L not older than 60 days, letter of intent to purchase business. These are the minimum requirements prior to entering loan underwriting.


Can you acquire minority ownership of a business, for example, below 50%?

SBA rules require 100% ownership of the business to be acquired. Even in a partnership, a 50% partner must acquire the full 50% of ownership.


How friendly are lenders and the SBA towards restaurant acquisitions? Provided the targeted business is performing well and meets the basic criteria.

Our lenders are actively closing restaurant acquisitions as long as the restaurant was not severely impacted by COVID-19 and has a sound plan to recover post-COVID-19. Larger restaurants tend to be getting approved more often when strong management is in place and will remain in place post-closing.


What is the shortest length of SBA loan?

We do not facilitate business acquisition loans with less than 10-year terms. There are loans available for shorter terms. Do keep in mind there is no prepayment penalty with SBA loans with terms of 10 years.


Are liquor stores eligible?

Liquor stores are great SBA loans as they tend to do well during recessions and during economic growth.


What is the verification process to prove the company is cash flow positive?

Federal tax returns to verify the P&L, or income statement. The lender will add back expenses that will not be incurred by new ownership.


Can seller financing be used for the entire 20% DP?

No. We require at least a 10% buyer down payment. There is a complex SBA rule that allows for less than a 10% buyer down payment but this is best left to a full article of its own.


Are SBA loans available to fund asset and share purchases?

Yes, SBA guaranteed loans can be used for both asset and stock ownership transfer of ownership.


Are the loans in question transferrable? Meaning if the current owner takes out a 7(a) loan, can I as the business purchaser assume that loan with the terms?

No, but it is not uncommon for a seller's SBA loan to be paid off by the new loan. About 20% of sellers we see have existing SBA loans to be paid off at closing.


As a permanent resident do I qualify for an SBA loan?

Yes, permanent residents, such as Green Card holders are eligible for SBA loans.


Aren't you referring to the 504 program?

No. The SBA 7(a) loan program can be used to buy commercial real estate. However, an SBA 504 loan can ONLY be used to buy commercial real estate and not additional uses such as a business acquisition or working capital.


Can the business be a McDonald franchise? Exist or new?

We are working on some McDonald's franchises right now. These are great SBA loans. New franchises are also eligible.


Can a small business owner obtain more than one SBA loan?

Yes, it is not uncommon at all for a small business owner to have more than one SBA loan. Entrepreneurial spirit cannot always be contained by one SBA loan.


Can these loans be used for rental properties?

No. SBA loans cannot be used for passive income purposes.


Can this loan be applied to buying a Canadian Incorporate company whose majority of sales revenue comes from the US?

The business must be headquartered in the United States.


Can this loan be obtained to expand existing businesses?

Yes. There is no down payment required for a working capital loan for an existing business.


Can we use an SBA loan to buy an apartment? it's considered commercial real estate.

If the apartment is zoned as commercial real estate and the business contained within occupies more than 51% of the total space, it is eligible. In Los Angeles, we have Live/Work lofts which are eligible for SBA loans.


Can we use our retirement savings for the down payment?

Yes. You can list the portion of retirement savings you plan to use in your loan uses and sources table once you register at the BizBuySell Finance Center.


Do we have to have a profitable business running now to be able to acquire a business?

No. However, if you currently own a business that is not profitable, the lender will subtract the current business losses from the global cash flow.


Does "adult industry" include alcohol?

No. Liquor stores and other establishments selling alcohol are eligible.


If a current business owner took part in the PPP program, would the new owner be responsible for any payback?

We have a few loans in process now where there is a PPP loan on the business balance sheet. The negotiation of who will be responsible for repayment of the PPP loan, should it not be forgiven, is between the buyer and seller. A lot of our transactions require the seller to deliver a debt-free balance sheet so the PPP loan would be a liability if not paid down or forgiven.


Am I eligible for a 7(a) loan if I already received PPP or EIDL funds?

Yes.


So, the CARES Act applies to the new buyer because the existing buyer met the qualifications when the CARES Act went into effect?

Not exactly. The new buyer is eligible if the SBA loan closes between March 27^th and September 27^th of 2020.


How does SBA treat seasonal business in tourist areas? Both business and real estate.

Florida is one of our better-performing states and we just closed a popular restaurant on the New Jersey shore. As long as the average yearly cash flow allows for payment of the SBA loan monthly payment plus what the owner needs to take out of the business to live, the business is eligible.

Let me note here that the SBA does not take part in a lending decision. SBA lenders make a prudent lending decision abiding by SBA guidelines called the SOPs.


10-year loans payment is based on amortization of how many years?

10 years. Each payment includes principal plus interest amortized over 10 years. There is no prepayment penalty for loans with terms of 15 years or less.


I am finding difficulty getting financing. I've been told by several financiers that underwriters have become stricter and are rejecting projects. How do we overcome this?

BizBuySell Finance Center will connect you with national lenders still very actively lending. The business must not be severely impacted by COVID-19 and have a strong post-COVID-19 recovery plan. Some banks have retracted their lending but other banks are actually lending at a faster rate than this period last year.


I am searching for a business and many don't have tax returns. Any way around that issue?

The SBA rule states that if tax returns are not available then yearly P&Ls (income statements) are acceptable. There must be a good reason why tax returns are not available. One acceptable reason might be that the business is part of a larger business and is being sold as a single entity. The dog eating the tax returns would not be acceptable.


I understand that it takes 3-4 months for the SBA process. A seller may not wait 4 months and you can't repay yourself back from a SBA loan. What do you advise and/or shorten to the SBA process?

If the buyer and seller are both organized, it should take no longer than 60 days to complete the entire process. I would advise quickly getting documents to the lender and between parties to shorten the process.


I was told people with solid personal financials do not qualify for 7(a) loans. Is that correct?

This is not true but a lot of people ask this question. Every buyer we see approved has strong, solid personal financials. Our average buyer has well over $70,000 cash or very close to being liquid, owns a home or has a mortgage payment, has a college degree and has done well professionally and financially.


If I am buying a business that does not come with real property and price is for $3MM, if I provide 20% down, how do I get away from putting real property as collateral?

Collateral is not a requirement for an SBA loan. If collateral is available, the lender is required by the SBA to attempt to collateralize the loan. For collateral, the lender has the business assets, tangible and intangible; your down payment plus, possibly, a seller note; plus the SBA guaranty to the lender which is typically 75%.


If I am just starting the process now, is there a good probability of getting an SBA loan closed by Sep 27^th? When is the "drop dead" date for getting in an SBA loan app?

Realistically, you should have the business selected and informal purchase agreement in place by the third week of July.


If I take a CARES Act SBA loan for my current business, will I still be able to take out a separate CARES Act SBA loan to buy another business?

Yes. I would recommend using the same lender for both. The BizBuySell Finance Center is a good place to start.


If I want to buy a Gas Station which is closed and I don't have any historical numbers for that can I still get a SBA Loan?

Yes, you can. Plan on at least a 30% down payment as this will be a projection loan. You will need a strong business plan, experience starting and running a gas station plus significant cash in reserves. We facilitated a $1.6MM closed car wash and the three partners buying the business were collectively worth more than $1.6MM. The fact that the commercial real estate came with this business was a plus.


Can I get the SBA loan for new business under my wife's name? She has a great credit history and I do not.

Yes, but the lender will still ask you about your credit history. A married couple is generally considered a "team" with the good and bad qualities of each being considered. I would like to add that a good credit score is not a requirement for an SBA loan but, rather, good credit character. I have never seen a lender not work through credit issues if it was medical, divorce or Great Recession related.


Does a personal bankruptcy 15 years ago disqualify me from an SBA loan. Not a single blip since then and 820 current credit score?

Being an entrepreneur sometimes leads to a failure on the way to success. A bankruptcy 15 years ago would not be an issue but you will be asked about it.


Is there any chance of the September 27 date being extended?

I asked several friends in the industry and none of them are aware of discussions within the SBA about a possible extension or additional funding. The US Government fiscal year closes on September 30th of each year and then the new SBA budget is in effect.


Is the loan guarantee fee also waived by SBA, or just the first six months payments?

The SBA Guaranty, which partially funds the SBA, is not being waved. The SBA is making six months of principal plus interest.


Does no payment for the first 6 months mean the loan term is extended by 6 months or payments will be higher for remaining 9 years and 6 months? Or the borrower simply gains 6 months of payments?

The payments are being made by the SBA directly to the lender. No extension to the loan and no period of higher payments.


Is there a grace period if you miss the Sept 27 date?

No.


If a company qualified for the PPP loan, does that impact this opportunity?

No.


What is the maximum 7(a) loan amount for this CARES Act loan repayment benefit?

$5,000,000 is the maximum SBA 7(a) loan size. The payment forgiveness for this loan would be approximately $333,360 if the loan is a 10 year term at 6%.

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