Lawyer for SBA deal?

searcher profile

August 27, 2023

by a searcher in Chicago, IL, USA

For people interested in buying a small business using the SBA, do we need a lawyer? The business I am looking at is only $245,000.

I am wondering if having a lawyer is necessary. I have never purchased a business before but would the business broker help me through the process or perhaps the SBA lender? Or would I definitely need a lawyer?

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commentor profile
Reply by a professional
from University of Minnesota in Minneapolis, MN, USA
Ok, I'll be the contrarian. You don't NEED a lawyer for this (or any) deal. In fact, bringing in the wrong lawyer might be worse than using no lawyer (that's right, I said it!).

To be crystal clear a lawyer might identify or address a significant risk that could save your bacon, in which case it will be the best money you ever spent.

On the other hand, if we're being honest, if the deal goes great and there are no real problems down the road, you will be fine without an attorney and you will not get a return (other than education) on your lawyer investment. Of course, it's only possible to know this in hindsight. If you decide not to use an attorney, for whatever reason, some general advice is to be as thorough as possible on your due diligence, and try to structure things so that you can put yourself in the best possible position should an issue arise after Closing (i.e. hold cash in the form of a holdback, escrow, or Seller Note to the extent you can negotiate it). The whole thing is a risk/reward analysis (good practice for owning a business!!) and you have to decide how much (if anything) you want to spend on a lawyer.

I did a Searchfunder webinar about small deals that you might find helpful here: https://www.searchfunder.com/event/view/803 or you can DM me if you want any additional insights on how SMB Law Group does small deals (spoiler alert - we scale back the scope of services along with the fee with the goal of covering the major land mines).

Good luck!
commentor profile
Reply by a professional
from University of Illinois at Urbana in Naperville, IL, USA
As the buyer, admittedly inexperienced and not knowledgeable about the legal risks and issues involved, you are at a serious disadvantage compared to the seller. The seller already has an advantage over you due to the seller’s superior knowledge of the business, good and bad. Thinking about the broker helping you through the transaction reminds me of a scene in Saving Private Ryan where a German soldier slowly plunges a knife into a US soldier’s chest as the German soldier says soothingly, "Give up, you have no chance. Let us end this. It's easier for you, way easier. You will see, it's over in a moment."

The SBA lender is only looking out for its interests, not yours. Not having a good lawyer on your side of the transaction, looking out for your interests, could cost you much more than the cost of the business. I’ve seen it many times.
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