Considering the loan requirements, favorable funding terms, and other details, it’s no wonder why U.S. small businesses receive millions of dollars in financing through the U.S. Small Business Administration (SBA) every year. The flexibility allowed by SBA loan programs makes it possible for business owners to use that credit in a variety of ways. Using an SBA loan to finance a business acquisition can be a smart use of that capital — here’s what you need to know to get started.
Start a company or buy one?
- Starting a company from scratch takes considerable time and investment. Even growing an existing business by opening new locations or introducing new products or services requires boundless energy and deep capital reserves. That’s why it might make more sense for entrepreneurs and growth-minded small business owners to acquire an existing business instead. Consulting firm McKinsey and Company says businesses benefit mutually from a merger or acquisition in a few ways:
- Realize increased scalability at reduced cost
Enter new markets quickly
Get new products or capabilities faster or at a lower cost, among others
No matter the specific reasons for acquiring a business, it takes significant time and resources to complete a merger or acquisition. Even the most successful small businesses don’t usually have the requisite cash and capital on hand to fully fund a merger or acquisition. However, that is no reason to let a valuable opportunity slip away. SBA loans, already used for a variety of other small-business financing needs, may offer a valuable solution for you.
Funding an acquisition with an SBA loan
Longer amortization and more flexible payment terms through SBA lending programs help more business owners get the financing they need to expand through a merger or acquisition. The federal guarantee attached to a majority of all SBA loans allows banks to lend to small businesses more confidently, with more flexible terms and at lower collateral requirements.
Except in a few specific cases, SBA loan requirements mean most small business owners are eligible to apply for the program. However, before securing financing for an acquisition, it’s important to evaluate lenders carefully — not all are created equal. A Preferred Lending Partner (PLP) earns that designation from the U.S. Small Business Administration after some time and proof that they are working efficiently and exceptionally on the behalf of business executives.
As a PLP lender, First Business’s SBA experts are here to help your company find its true potential. That means working closely with business owners to get their applications approved on time and continuing to develop a strong working relationship after the acquisition is finalized. Reach out to First Business today to learn more about our methodology and what sets us apart from other SBA lenders.