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Financing Your Business Part 2
Dec 2013

Financing Your Business Part 2

By webmaster

Financing Your Business: SBA

There are many loan programs through the SBA, but this article will focus on the most useful in acquiring a Business, the SBA 7(a) loan. This loan can also be used for real estate, equipment and capital needs.

In financing your business acquisition, the SBA requires the Seller finance 20% of the Business, the Buyer to put 20% down and the Lender finances the remaining 60% with a portion guaranteed by the SBA. The problem with this type of financing is it puts the Seller at risk. The Seller’s note is secondary to the Lender/SBA, meaning in the event of a default the SBA has rights to the Business Assets first. For this reason some Sellers choose not to accept SBA backed purchases.

There are benefits for the Buyer and the Lender, as the risk is more spread out. Also, a Lender will feel more at ease with the SBA 7(a) Loan, as a portion of the loan is guaranteed. This can allow a Buyer to purchase a Business with a larger loan than they otherwise would qualify for.

The SBA 7(a) loan can be used for other business financing needs outside of just acquisition and the SBA also offers other loan programs such as the CDC/504 which is for Equipment and Real Estate as well as Disaster and Microloan Programs. To learn more about the loan programs the SBA offers please visit their website.

Financing Your Business: USDA

The USDA also has many loan programs to consider. The loans through the USDA tend to revolve around the needs of rural communities, however they do offer Business and Industry Guaranteed Loans (B&I Loans).

The B&I loan program is designed for rural areas and cities or towns with populations less than 50,000 people. This loan program seeks to help fund companies who are providing jobs, boost economic development or deal in water conservation or renewable forms of energy.

The loans can be used for acquisitions, business development, land, equipment, or inventory purchases. Like with the SBA a portion of the loan is guaranteed. The portion varies from 60-80% and there is usually a cap of $10 million  loaned. There are exceptions to the cap which require special approval, these exceptions allow the loan amount to increase up to $25 million and in some cases $40 million. These Guarantees do come with required collateral, so in using USDA loans to purchase a Business the collateral would have to cover the lender’s and the USDA’s portion of the loan.

To learn more about this type of loan and other loan programs the USDA offers, visit their website.


Coming the Third Week of December: Join us for the third part of our Financing Your Business series where we will learn more about Commercial, Private, and Seller Financing Options.  

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