Downsides of the SBA 7a Loan?
February 22, 2024
by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business in Chicago, IL, USA
I am a first-time searcher and looking for the best and quickest option for funding as I have my eye on a business that is getting other offers. I have heard mixed reviews on SBA 7a loans so I wanted to gather the community’s insights!
in United States
I'm all in on the SBA. But, let's keep it real – not everyone who claims they're an SBA wizard really knows their stuff, leading to mixed signals. Plus, every lender has their own in-house underwriting playbook and no-go industry zones, not to mention the newbies and the revolving door of loan shop staff that can slow things down or mess things up. This all affects how smooth your SBA journey to business ownership is.
Now, if you're stepping up to own a chunk of a business (we're talking 20% or more), you've got to put your own skin in the game – that means promising to pay back the loan yourself, with a personal guaranty, if it comes to it. And yep, if you've got property with some value in it, the SBA expects lenders to use that as a safety net for the loan.
Proposed business buyer thinking of snagging a business but doesn't want to guarantee personally? Might want to think again. You need to be all in, especially if the bank's covering most of the tab on a deal that's heavy on the "what ifs" and light on the collateral. If the bank is putting up 90-95% of the cash, the bank needs to know you're as committed as they are to making this success story happen.
I specialize in helping clients secure business acquisition loans. After spending years with direct bank lenders, I saw firsthand how strict credit policies could kill potential deals. Now, I have a network of SBA loan experts from various institutions ready to help. I focus on delivering high-quality client packages, ensuring they meet the strict criteria of both banks and non-bank lenders supported by the SBA.
The process can be complex, but with the right consultant who has strong, respectful relationships with direct lenders, and the SBA, funding is absolutely possible within###-###-#### days. Success depends on both the seller and buyer being well-organized and proactive. Ready to make your move? Contact me at redacted
Thank you @^redacted
from University of Virginia in Oakland, CA, USA
I think the SBA options including 7a loans are fabulous, but you must realize they also exist inherently as a support mechanism for small business entrepreneurship in our country. They are intended to make transactions that would otherwise be impossible, possible for qualifying entrepreneurs.
However, the terms, underwriting timelines, and criteria can be inherently challenging. The timeline required to complete an SBA acquisition loan can be much longer than other financing options. Every situation is different, and yet SBA qualifying criteria attempts to make all situations conform. The interest rates are generally floating at several points above prime.
I am working on a deal where the business is very profitable, so much so that the owner was paying all of his extended family a salary for soft "sales and management" duties, as a means of reducing the business effective reported earnings and sharing the wealth rather than paying it to uncle Sam. The record is obvious, and the seller wants those distributions added back into the adjusted EBIDTA we are multiplying to determine our price. I personally have zero issue with the reality of those cash flows, but the SBA underwriter rejects this as disallowed add-backs, instead relying on the tax return statements. As a result we have had to ditch SBA and we've pivoted to negotiating a seller note in that case.
TLDR - yes, mixed results in competitive bidding situations. Can also be an incredible tool to unlock deals in the right context. Mileage will vary.