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Frequently asked questions

Where can I get an SBA Loan?

Any bank or credit union can make an SBA 7(a) loan. There are also 14 licensed non-bank lenders that can make them. Last year, about 1600 different institutions made at least one SBA 7(a) loan! That said, not all of them know what they are doing. My advice: always work with an expert.

Do SBA lenders care more about collateral or cashflow?

Cashflow. That said, many SBA lenders also want some level of collateral. Every lender has their own risk tolerance when it comes to lending without collateral. If you have a loan request that is lacking collateral, you’ll want to work with more of a collateral-neutral SBA lender.

Do I need to provide a Personal Guarantee?

Yes–anyone who owns 20%+ of the business will provide a personal guarantee

Will I need to pledge my house as collateral?

If you own real estate with 25%+ equity, you will need to pledge that equity toward the loan until the loan is fully secured, or all available collateral has been pledged–whichever comes first.

What are the SBA’s debt service coverage requirements?

The SBA requires a minimum debt service coverage of 1.15x, however that’s just the minimum. Each lender sets their own requirements, which may go above and beyond the SBA’s.

How much cash does the SBA require me to put down?

The SBA has a 10% minimum equity injection requirement for 3 types of projects: business acquisitions, start-ups, and some partner buyouts. Outside of these, it’s the lender´s responsibility to determine if an equity injection is needed, and how much.

Do seller notes need to be on full standby?

Only if it’s being used as part of your required equity injection. If you are using seller financing as part of your 10% equity injection to buy a business, it will need to be placed on full standby for 2 full years.

Are there any types of businesses SBA doesn’t lend to?

Yes–here are a few: passive businesses, businesses that promote religion, businesses engaged in gambling, strip clubs, businesses involved with anything illegal on the federal level, etc.

How long does the process take?

It depends on the project. A transaction such as a real estate purchase or business acquisition will typically take 60-90 days from the time you first connect with your lender.

Can I acquire part of a business?

Yes, but keep in mind, any remaining owners with 20%+ ownership must personally guarantee the loan.

Are “earn outs” allowed in a change of ownership transaction?

No - the purchase price must be fixed. That said, some buyers will utilize a “forgivable seller note” in their structure to protect against downside risk.

Expert advice from an actual sba lender

Loan Terms

Pre-approval

Underwriting

Closing

Process