If there’s one thing we’ve learned in the business transaction world, it’s that the rules never stay the same for long.
The Small Business Administration (SBA) regularly updates the rules governing its loan programs, and another round of changes takes effect Oct. 1. We won’t bore you with every detail, but several could have a real impact on business buyers and sellers.
What Sellers Should Know
Acquisitions may create new growth opportunities.
If you’ve owned your business for at least two fiscal years, you may be able to use SBA financing to acquire another business with little or no additional equity injection, depending on how the transaction is structured and whether it meets SBA requirements.
Buyers may want you around longer.
SBA rules previously generally limited a seller’s post-closing consulting period to 12 months. That has been extended to 24 months, giving buyers more flexibility to negotiate a longer transition.
Expect SBA-financed deals to take longer.
For business purchases under $3 million, planning for 90 days or more is becoming increasingly realistic. Larger transactions may take substantially longer.
What Buyers Should Know
Smaller SBA loans won’t necessarily mean an easier process.
Loans of $350,000 or less previously benefited from streamlined requirements and lower fees. Those advantages are being reduced, which could make smaller acquisitions more challenging to finance.
Larger acquisitions will require more planning.
SBA-financed acquisitions of $3 million or more will face additional scrutiny, longer timelines, and potentially higher costs.
Financial strength matters.
Lenders will be paying close attention to both the buyer’s financial position and the strength and consistency of the business being acquired. Strong cash flow, clean financials, and adequate liquidity will continue to separate financeable deals from those that struggle to close.
SBA also won’t always be the answer.
Buyers may increasingly consider conventional financing, seller financing, or retirement funds through a Rollover for Business Startups (ROBS).
But SBA Rules Aren’t the Only Thing Changing
The DNA of the business buyer is changing, too.
Not long ago, many buyers we worked with were local individuals leaving corporate America to buy their first business. We still see those buyers, but increasingly, they’re sharing the market with a different kind of acquirer.
Today’s buyer may search nationally, already own several businesses, have investors behind them or follow a defined acquisition strategy. Some are owner-operators. Others are building platforms designed to acquire multiple companies in the same industry.
They tend to be more sophisticated, prepared, and selective.
For sellers, that means clean financials and a business that can perform without the owner are increasingly important. For buyers, it means being financially prepared and knowing your acquisition criteria before the right opportunity appears.
The rules will continue to change. So will the buyers, lenders, and financing options.
Our job is to stay ahead of those changes so our clients don’t have to.
Whether you’re considering selling, buying your first business, or growing through acquisition, we’re happy to have a complimentary conversation about your goals and what today’s market means for you. Give us a call at 573-335-1885.
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