Financing | Sell My Business | Pacific Business Sales

Financing the Sale of Your Business

Generally there are two forms of financing for the sale of a business, an SBA loan, a Seller Note or many cases both.  While every business owner’s dream is to sell their business for “cash”, few transactions are for all cash other than for very small businesses.  With that said, is it possible to get all cash at closing for the sale of your business?  If it qualifies for SBA financing the answer is yes.

Why SBA Financing is a Great Deal for Buyers & Sellers

We love SBA financing for a number of reasons, first and foremost the SBA will finance up to 90% of the business acquisition (if it qualifies).  This means a buyer can purchase a business for 10% down and finance the rest over 10 years at prime + 2.75%.   With a 10 year term and low-interest rates this improves the cash flow for the buyer making the business very attractive for prospective buyers.  The low down payment of just 10% also opens pool of prospective buyers to many more buyers.

As an example, a buyer purchasing a business for $1,000,000 would be able to buy it with just $100,000 down and the seller would get $1,000,000 at closing (less closing costs).   In many cases the SBA lender may require the seller to carry a small seller note of 10% of the transaction value resulting in the seller receiving 90% of the transaction value at closing (less closing costs).

This type of financing structure puts the business within reach of more buyers and makes it much more attractive than businesses with no SBA financing.

COVID Relief 2020/2021 SBA Update Update

The CARES ACT provided 6 months of no loan payments on new SBA loans from March 2020 through Sept 2020 (no principal or interest due for 6 months) with those payments forgiven and paid by the SBA.

The new COVID Relief bill passed in December 2020 is reviving that program and offers no payments for 6 months on new SBA 7a Business Acquisition loans funded between February 1st, 2021 and September 30th, 2021. The 6 months of payments will be made by the SBA. This is essentially paying 6 months of interest and principal on the borrower’s behalf.

This program was hugely popular during 2020 and was responsible for increasing business sales while the program was active.  We expect it to be equally or even more popular in 2021, creating a very busy 2021 for business sales.

Example of Savings:

For example, on a $1 million SBA loan at 5.75% (SBA rate as of December 2020), the monthly payment is $10,976.92 and the buyer would save $54,000 (loan forgiveness is capped at $9,000 per month).

Other SBA Changes…

SBA 7a loan (business acquisition financing) down payments were reduced to 10% down, with up to 90% SBA financing, effective January 2018.

Also, business acquisition transactions with 51% or more real estate value in the transaction may be financed as if the entire transaction is a real estate purchase with 25-year financing.

We work with a number of SBA PLP (Preferred Lender Program) lenders, Call 949-200-6350 to get your business pre-qualified for SBA financing!

Read More About SBA Financing

But I want Cash for My Business!

Every seller naturally wants a cash deal, to walk away with no worries and a fat bank account. This is a nice dream, but not reality other than for extremely small transactions. There are a number of reasons this seldom happens.

3 Reasons Why Cash Sales Rarely Happen

  1. Buyers often want a seller note as an assurance from the seller that the business is what they claim it is and future revenues and earnings are reliable.  SBA lenders also often require a small seller note with the SBA loan.
  2. Buyers distrust a seller that insists on all cash and refuses to carry a note.
  3. Cash transactions don’t make financial sense to the buyer – they are better off finding a business that offers financing, either seller note, SBA, or both. Financing leverages the buyer’s cash so they can buy a bigger business with less cash upfront (less down payment).
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