If you’re eyeing the prospect of taking over the business your boss owns, recent changes by the Small Business Administration (SBA) might make your goal more achievable. Whether your boss owns the business outright or you’re already a partial partner, the SBA has revised its rules to simplify the financing process for buy transactions. Let’s delve into how the SBA works and explore the recent changes as compiled by Sean Kelly from BOK Financial, a preferred lender in such transactions.
One significant change involves increased flexibility for sellers post-sale, allowing them to stay involved in the company or carry back a note as part of the financing. Unlike previous requirements mandating the seller’s complete exit, new rules allow sellers to retain a role as a minority owner or employee without long-term control.
Moreover, buyers can now secure a loan to purchase a portion of the business, with the owner maintaining control for up to two years. Subsequently, a second loan can be obtained to acquire the remaining stake. Key points in the program include:
- A secured term loan of up to $5,000,000 with a 10-year term. This is extendable to 25 years if real estate is part of the sale.
- A minimum 10% down payment by the buyer, potentially waived in some cases.
- Personal guarantees from any owner with more than 20% ownership, covering all their assets.
- Seller note subordination to the bank and SBA, with its term subject to approval but possibly contributing to the down payment.
In addition, the bank may provide a revolving line of credit for operations alongside the business acquisition term loan. The loan structure can vary, and seeking guidance from the involved banker for optimal structuring options is advisable.
These SBA rule changes create new opportunities for business sellers, allowing them to play a more active role in the post-sale transition and reduce the risk associated with seller notes. If you’re considering owning your boss’ business or becoming a partner, engage with your banker to explore this potential transaction. Successful business acquisitions demand careful planning, and involving a business broker can offer valuable support, from market valuation to navigating the loan process.
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