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Small Business Loans (SBA) |
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The Small Business Administration offers numerous loan programs to assist small businesses. However; there are several criteria and conditions set up in order o be able to obtain one. The amount of down-payment required varies but it is usually between 15-30%.
The sources of down-payment that are acceptable by the lenders are:
- Home Equity
- Savings
- Retirement Plans
- Gift
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You can not borrow the money or utilize a credit card for your down payment! |
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The loans are typically amortized over a 10 year period and the interest rate is generally 2 points above prime depending on the lender.
The SBA loans are government approved loans and require many financial books and records such as the borrower’s last three years of tax return and the tax returns of the business that is purchased. The lenders also prefer borrowers that have prior experience with the type of business they are acquiring.
Generally, most SBA lenders require some sort of collateral such as:
- Real estate
- Stocks or bonds
- Other personal assets
- Personal guarantees
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Home Equity Line of Credit (HELOC) |
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A HELOC allows you use the equity in your home to qualify for a sizable amount of credit with a relatively low interest rate that you can use when and how you please. You as a borrower will only pay interest on the amount that you use which is very similar to a credit card. |
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Most small business sales are financed, at least in part, by the sellers themselves. Offering seller financing puts the seller in a stronger position to get a better price and a faster sale. Seller financing is particularly common when the business is large enough to make a cash sale difficult for the buyer (over $100,000), but too small for the mid-market venture capitalists (under $5 million). Seller financing is also common when the business, for any number of reasons, does not appeal to traditional lenders.
A rule of thumb is that sellers will typically finance from 1/3 to 2/3 of the sale price. Many do more than that. It all depends on the situation. Each transaction is unique. The interest rate of the seller note is typically at or below bank prime rates. The term of the seller note is usually similar to that of a bank.
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Wise Business Advisors has established several relationships with lenders that will finance up to 50% of the purchase price. This type of loan does not require any collateral. It is normally amortized over 5-10 years. The interest rates are typically a little bit higher than SBA loans but they are faster to get approved for, less paper work and less criteria is required. |
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For more information, please contact us at (818)933-5222. |
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