SBA Loan to Buy a Business: How Deals Get Paid.
An SBA loan to buy a business is the American government-guaranteed route most small buyers use. The buyer puts in ten per cent, so $35,000 on the median deal, plus a personal guarantee. Also, sellers often carry part of the price themselves.
How the American route works.
In one recent year, these government-guaranteed loans totalled around thirty-one billion dollars. About a quarter of that went to people buying existing businesses. Also, more than six in ten Main Street acquisitions under five million dollars use one. So the down payment to buy a business is ten per cent. On the median deal, that is $35,000 and a personal guarantee.
The seller often lends you part of the price.
In nearly four out of ten small transactions, the seller takes some money over time. That seller financing business purchase means the founder keeps a stake in you succeeding. Therefore, you may not need the whole price on day one. Many people rule this route out on an assumption they never checked.
Your country changes the SBA loan to buy a business picture.
Outside America, there is no true equivalent of an SBA loan to buy a business. Britain guarantees seventy per cent of lender risk on facilities from £25,000 to £2 million. Mexico's development bank lends without collateral up to a couple of million pesos. Meanwhile, European schemes are fragmented and mostly not built for buying a company. So price a harder road if you live outside America.
Check whether an SBA loan to buy a business fits you.
Write ten per cent of a price you could imagine paying, and compare it with your savings.
Note which country you live in and which financing scheme from this chapter applies to you.
From the book.
Sellers often carry part of the price themselves, and this is the part nobody tells you. In nearly four out of ten small transactions the seller takes some of the money over time rather than all of it at closing, which means the person who built the thing keeps a direct stake in you not failing with it. Read that again if you have been assuming you need the whole price on day one, because a great many people rule this out on an assumption they have never checked.
I Want to Start a Business but I Can't Quit My Job, chapter 11: Buy the business instead of building it
Questions about SBA loan to buy a business.
How much down payment does an SBA loan to buy a business need?
The buyer puts in ten per cent of the price. On the median deal of three hundred and fifty thousand dollars, that is $35,000 plus a personal guarantee.
Do sellers help finance the purchase?
Often, yes. In nearly four out of ten small deals, the seller takes part of the money over time.
Is financing easy outside the United States?
No, it is harder. Britain and Mexico have schemes, but nothing matches the American arrangement.
Read the whole chapter.
This lesson covers one section of chapter 11, “Buy the business instead of building it”. The book goes further, with the full evidence, the stories and every exercise.
Lessons in this chapter.
- 01 How Much Does a Small Business Cost: Real Numbers.
- 02 Survival Rate of Acquired Businesses: The Real Gap.
- 03 Baby Boomer Business Owners Retiring: Where to Look.
- 04 Build vs Buy Decision: The Reflex You Never Priced.
- 05 SBA Loan to Buy a Business: How Deals Get Paid.
- 06 What Is a Search Fund: And What It Cannot Tell You.
- 07 How to Evaluate a Business for Sale in One Hour.
- 08 Can I Afford to Buy a Business: Honest Objections.