Recent Changes to the SBA 7(a) Loan Program for Business Acquisition Financing
SBA 7(a) loans are a popular type of financing for small business acquisitions. These loans go up to $5,000,000 and can be used to buy a business, real estate or equipment. Several changes to the SBA 7(a) program became effective in 2018 that are worth noting.
Some of those changes include:
- Lower down payment. Required down payment has been reduced from 25% of the purchase price to 10% of the project cost (project cost = purchase price + operating capital borrowed + closing costs).
- Longer seller note stand-by period. The old SBA rule required a seller note to be on stand-by for 24 months if it was to be considered part of the purchase down payment. The new rule requires any seller note that is part of the down payment to be on stand-by for the entire term of the loan.
- Loan amortization length. The old SBA rule allowed the loan term to be equal to the amortization length for the largest portion of the loan proceeds category. The new rule requires 51% of the loan category be real estate if the loan is to be amortized at the real estate term of 25 years.
ESGI’s M&A brokers stay current with the market for business acquisition debt and equity funding, including changes in the popular SBA 7(a) loan program. Our business appraisers regularly provide business appraisals for acquisition funding purposes. We work closely with California and national lenders that actively fund business acquisitions, and would be pleased to help you apply for funding or connect you with a quality lender for your next business sale, acquisition, buy-out or merger.
For more information Email Louis Cionci at LCionci@exitstrategiesgroup.com or call him at 707-781-8582.
