New SBA Loan Rules
August 06, 2024
by an intermediary from University of Florida in Nashville, TN, USA
Is anyone familiar with the new SBA loan rules? I have recently seen a SBA deal wtih 5% equity down and one with 0% equity down. I think now you can use whatever structure or rollover equity amount you want? Can somoeone help me confirm?
in Stuart, FL, USA
So, while you may have heard so and so got a deal done with X amount down doesn't mean that's how it works across the board. Can you do 5% down deals? Absolutely I'm doing a handful of them right now. Can you do 100% financing deals? Yes, I just closed two in the last week. But that doesn't mean that will work for everybody and every deal. It simply depends on the deal.
As people have mentioned on this board there are things that help with these situations. Collateral is one of them, post-closing liquidity is another, direct or good translatable experience as well, and certainly how the sellers note is structured and if any of it is going toward the buyer’s injection and if there is a standby period on the note. You must look at every deal individually, mitigate as much risk as possible, create the correct narrative and present it in a way that is palatable to the lender.
There are some rules in place that make it, in theory, so the buyer doesn't have to come in with any money, however, most lenders are not that stupid and they want to see the buyer have some skin in the game because they know that the default rate goes through the roof when the buyer has nothing in the deal.
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
If you are doing a partial business acquisition you can only do so if you buy the stock or membership interest in the company and the seller retains their portion of the stock or membership interest (so it is not a traditional roll-over). If any individual seller retains 20% or more of the value, then that seller must sign a personal guarantee. If you layer in the new debt on a partial business acquisition into the balance sheet and you have a debt to equity ratio of 9 to 1 or less, you can technically get away with $0 down according to the new SBA rules. However, again, most lenders still want to see some minimum contribution from the buyer(s), usually in the 2.5% to 5% range.
If you are doing an add on acquisition in the same NACIS code for an existing business you already own, 100% financing is available via the SBA.
I hope this helps to clarify. I would be more than happy to jump on a call to discuss the new rules in more detail at any time. You can reach me here or at redacted