Mission Peak Brokers provides loan brokering services for clients seeking a business acquisition loan to buy a small business. These business opportunity loans are regulated by the Small Business Administration and are more commonly called an SBA loan.
The following information provides basic information. If you would like to speak with one of our loan brokers regarding your financing needs, please call us at (510) 490-9700 or contact us.
What are SBA Business Acquisition Loans?
The Small Business Administration is a federal government program that guarantees commercial loans for small business financing. The SBA does not loan money directly to business buyers. Instead, lenders who offer business acquisition loans are regulated by the SBA. The SBA provides provides SBA loan guarantees of up to 85% of the loan amount through SBA-approved lenders.
Are there different types of SBA Business Acquisition Loans?
The SBA loan program that is right for you will depend on the size, age, and goals of your business. While there are a variety of SBA loan programs, the most popular 2 programs for buying a business are:
The SBA 7(a) loan is the most popular loan for buying a business. The 7(a) loan is also used by business owners who are seeking general financing needs for their business like expanding working capital, refinancing old debt, or renovating a location. SBA 7(a) loans are up to $5M in the loan amount. Repayment terms are for up to 10 years or 25 years when commercial real estate is included.
The CDC/504 loan is used to purchase major fixed assets—mostly large equipment such as machining equipment, and commercial real estate. CDC/504 loans are up to $5.5M. The repayment period is up to 25 years.
How do you apply for an SBA loan?
Working with loan brokers, such as Mission Peak Brokers, are a great way to shop different lenders to identify the best option for your particular transaction. Some lenders are considered preferred lenders which helps expedite the underwriting process.
The following are typical documents that you will need to provide to secure Business Acquisition Loans.
- Driver’s License
- Voided Business Check
- Bank Statements
- Balance Sheet
- Profit & Loss Statements
- Business Tax Returns
- Personal Tax Returns
- Business Plan
- Business Debt Schedule
- Business Plan
- Business Purchase Contract
How do you qualify for an SBA Loan?
Bank lenders have complicated loan applications to carefully analyze the financial details of the business you want to buy as well as your assets and creditworthiness. SBA lenders will review your credit and financial statements. You may have to secure the loan with collateral like your home.
Lenders are looking at both the financial performance of the business and the creditworthiness of the buyer. Lenders will approve applicants with great credit, a solid business plan, profitable businesses and a the ability to repay the loan.
What are the costs of a 7(a) SBA Loan?
The SBA charges a guaranty fee for the service of guaranteeing the loan. A guaranty fee of 1.7% for loans up to $150K, and 2.25% for any SBA 7(a) loan greater than $150K. You can either pay the fee up front or, as most borrowers do, wrap the guaranty fee into the total cost of the loan. Some banks might also charge an origination fee or a loan packaging fee, depending on which banks you’re working with.
Interests rate vary with a maximum of 2.75% + Prime Rate (typically between 5 – 10%). 7(a) SBA loans are either fixed or variable (typically adjusted quarterly).
The SBA puts a ceiling on 7(a) loan rates by limiting the “spread” a bank is allowed to apply on top of the loan’s base interest rate. If your loan is more than $50K, your rate will be set by the Prime Rate and the maximum spread will be at most 2.25 % points. For SBA loans of more than $50K, your spread increases to 2.75 % points. Like all loans, your interest rate depends on your credit score and the length of your repayment term.
What are the costs of a CDC/504 SBA Loan?
The 504 loan program involves two individual loans—one from a bank (which is 50% of the loan) and one facilitated by a Certified Development Corporation (which is usually 40% of the loan). The combination of loans have interest rates are about 5-6%
Most CDC/504 SBA loans have total fees of about 3% of the loan amount. To secure financing, you’ll need to put around 10% of your purchase down.
What is the SBA Loan repayment period?
For SBA 7(a) loans, up to 10 years for business acquisitions, working capital loans and equipment loans. Up to 25 years for business opportunity/commercial real estate loans. What would a 7(a) SBA loan mean for your business’s cash flow?
For CDC/504 SBA Loans, the repayment term is either 10 and 20 years.