Buying a Business with an SBA(7)(a) Loan
SBA(7)(a) loans are popular when it comes to financing start-ups, but they can also be used for acquisitions.
You can use the SBA 7(a) loan to help you cover the expenses associated with buying an existing business.
Buying a business that’s already established could allow you to walk into work with customers, employees, and inventory from day one. But you still need capital to buy an existing business, and if you can’t get a traditional small business or personal loan, consider a loan backed by the Small Business Administration (SBA), which could allow you to purchase an existing business. It may not be feasible for all acquisitions, but if the following criteria are met, SBA (7)(a) loans offer quite an attractive option for borrowers.
The business you’re buying should be open and operating. The SBA will need to know what type of business you plan to buy to determine if it’s likely to continue making a profit (and whether you’ll be able to pay back the loan amount). In general, the business you’re planning to buy with the loan proceeds must be established for at least 2 years, and profitable.
In order to buy a business using an SBA 7(a) loan, you will need to provide the following with your application package:
Agreement to purchase the business
Letter of intent to buy the business
Business tax returns for the past three years
Any outstanding business debt
Long-term business contracts
Documentation of business assets
Business lease agreement
Incorporation documents and/or business license
In addition, the SBA will usually order an independent business appraisal to give lenders an idea of what the true value of the business is.