$2.1M SBA KEY POINTS
?? When you're buying a business in the $1-5M range, SBA Loans are usually what people will use to finance the deal.
?? Here are some key points from the last 2.1M SBA deal (eCommerce) we worked through and closed:
1? - HEALTHY BUSINESSES GET APPROVED
Not all of them but, distressed/declining businesses, ones with improper financial documentation, solo run businesses, these are all risk factors to your lender and they should be for you too. Too many buyers get fixated on the number, price, multiple and terms while the actual quality & health of the business they are buying takes a back seat. Price doesn't matter if you end up buying a bad business to begin with. Bank won't finance the full amount, only half? That's a good indicator you shouldn't be ignoring either.What are the key factors to a healthy business?For me it's Profitability, Automation, Uniqueness, Traffic and Documentation among many other things.
2? - UNDERSTAND THE BUSINESS, PLAN FOR GROWTH
It's really easy to get so fixated on each step of the business buying process and lose sight of actually understanding the business and your exact strategy to grow it post-acquisition. I always ask myself "Do I understand exactly how this business works?
What do I not understand?". How exactly do they attract and sell to customers? Who does what and what will YOU have to do after the business is yours? What systems affect the sales & bottom-line the most, how fragile/strong are those systems?
Beyond the mandatory Business Plan you're going to have to draft for the bank, you should have the main objectives you want to tackle (keep this list short), your 1-2 month objectives, 6 month and 12 month objectives too. Closing a deal and not having your objectives in front of you makes for mental chaos, I have my main objective on paper and pinned to a wall in front of me on every deal I do.
3? - DON'T RELY ON THE BUSINESS BROKER
Remember, this is YOUR deal!Most of the time it will be the seller's broker guiding the process, they are not working for you, they are ultimately working for the seller. Too many buyers let the brokers set the pace, control the terms and look to them as the final authority, they are not. At one point in the deal, we were at a standstill with a handful of points the seller and their lawyer didn't want to budge on. Making ZERO progress for a couple of weeks while the broker did nothing to help. We ended up scheduling a call with the seller, no lawyers, and went line by line on each of the items we couldn't resolve. By the end of the call every point was addressed and could finally get to signing the Purchase Agreement. You can always HIRE help, 7/8 figure deals have 7/8 figure implications, a few thousand (or more) is well worth the professional guidance.
4? - BANKS WANT LEVERAGE AND CLEAN BUYERS
The general word is if you have a house then you'll have enough leverage for an SBA loan for buying a business, some even saying you don't need one. This is ultimately going to boil down to the bank/lender and other factors with you as a buyer, but that being said, Banks want their security. Have 8 properties?They're going to want to leverage all of them. Consider what you have and the price of tying them up in your deal.Banks/Lenders are going to take a forensic look at your finances, debts and history. So make sure you have them cleaned up before you try and buy a business. Credit cards that have been written off, small debts you forgot about, even being arrested 15 years ago, they will find it all. Fix them and have an answer for the ones you can't ahead of time so they don't drag your deal out. Also consider loan brokers vs. individual banks.I like loan brokers because having multiple options (or the best option) is much better than getting a "no" from one bank and having to start over again with another bank.
5?- DON'T SKIMP ON DUE DILIGENCE
There are plenty of "cost-effective" due diligence services that can make the first time buyer feel like they got a good deal without ever really looking at the crucial points you want to uncover during the due diligence process. You're not buying a $20,000 car, you're buying a 7/8 figure business, which has the potential power to absolutely ruin your life if you buy a "bad" business. Thoroughly research your due diligence teams and be clear on exactly what they'll be doing. You don't need due diligence for everything but don't skip where it is needed. i.e. everyone will do financial/legal due diligence but not for the marketing systems, skip HR or Operational due diligence. Too many buyers worry about saving a few thousand to rush a 7/8-figure deal. Take your time to understand, verify and analyze, don't assume anything.
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There are many other points I could mention but hopefully these main highlights help you on your future deals. Follow me or reach out if you have any questions!