Q: What banks do you recommend for SBA financed loans?
A: We at PPT have had a lot of success with LiveOak Bank, Key Bank and Heritage Bank. All are Preferred SBA Lenders and have conventional options available. Contact information below.
Q: What are the general requirements for obtaining an SBA loan?
A: That (a) the business being acquired is at least 2 years old; (b) you have personal credit score of 630+ (with exceptions); (c) you are seeking at least $30,000; and (d) the business is profitable.
Q: Do all banks have the same policies?
A: No. Bank policies vary drastically, and their policies are not the law. If one bank’s policies do not meet your needs, try another bank. We are happy to give you tips and tricks.
Q: What is the equity injection requirement for SBA loans?
A: The equity injection requirement is currently 10% (between buyer and seller), so each SBA preferred lender will be able to finance up to 90% of the deal. 5% equity must come from the buyer at a minimum with the remaining 5% coming from the seller in the form of a promissory note. If a buyer has 10% equity to inject, no other injection is likely to be required.
Q: How long does the financing process take?
A: On average, loan approval can take 60 to 90 days from the time all information has been provided to the bank.
Q: What information will most banks require from the buyer?
A: SBA application, fully executed LOI, past three (3) years W-2’s, past three (3) years personal tax returns (all pages), year-to-date pay stub(s) if applicable, two (2) months bank statements identifying your source of down payment, and personal financial statement. If the buyer owns 25% or more of another company, additional information will be required to include: Past three (3) years business tax returns (all pages), year-end P&L and balance sheet for the past three (3) years, year-to-date month-ending company prepared P&L, balance sheet, AR and AP aging reports, and business debt schedule to match YTD balance sheet.
Q: What information will most banks require from the seller?
A: Past three (3) years business tax returns (all pages), year-end P&L and balance sheet for all three (3) years, year-to-date month-ending company prepared P&L, balance sheet, AR and AP aging reports, prior year’s P&L and balance sheet to match date of item above for comparison purposes, business debt schedule to match current YTD balance sheet, employees’ W-2’s and YTD pay information, seller’s YTD pay stub, and 4506-T. If Real Property is being sold, all of the above items applicable to Real Property will also be required.
Q: What can Private Practice Transitions do to help with this process?
A: We have assisted dozens of buyers secure favorable financing as low as $35,000 and as much as $5 million. We know how to move the process along, get you to the right lender for your individual financing need and, in general, make the process much less scary and onerous. We will work with you, and your lender, to provide all of the required information via secure file share and, in general, facilitate the process.
Q: Which bank fees are negotiable?
A: In general, only the SBA guarantee fee is mandatory. Many banks can cover other loan costs in order to earn your business. If you don’t ask, they won’t tell, so ask!
Q: What is the average interest rate on an SBA loan?
A: The Small Business Administration (SBA) sets the maximum interest that banks can charge on SBA loans. As of 2021, The current maximum interest rate range was prime + 2.75%. Depending on the size of the loan and the amount being borrowed, this rate may change. Currently, there are very favorable programs with numerous lenders that are taking advantage of CARES Act subsidies. Time is of the essence, however, as these subsidies will run out.
Q: How does the CARES Act impact me as a borrower?
A: The CARES Act has provided many benefits to borrowers using the SBA program. Until funds allocated for SBA 7a programs run out you’ll likely see your SBA Guarantee Fee waived (a savings of ~3.5% of your loan amount) and up to $9,000 per month in principal and interest payments paid for you for up to 3 months. It is important you ask your banker about what else they may be doing to provide incentives or “specials” at this time. There will be a time that the CARES Act will no longer provide this benefit.
Q: How long does the closing process take?
A: On average, from the time of loan approval, it takes 2-4 weeks to close.
Q: What collateral or security will the lender request?
A: If you have more than 25% equity in your home, then the lender will likely ask for an “abundance of caution” lien on your home. More often, though, term life insurance naming the lender as collateral beneficiary is used. We highly recommend that you contact Dan Halos to obtain a quote for this insurance: