Thinking about starting a new or buying an existing business? While that decision is undoubtedly a hard one, the next decision can be equally, if not even more, difficult.
How do I pay for it? How to fund the purchase of a business is a question that we have helped clients through countless times at The Strong Firm P.C.
Small Business Association (SBA) loans are a viable option for some new small business owners. Unlike with a grant, a SBA loan does have to be repaid.
One common misconception about SBA loans is that they are very easy to obtain since they are “guaranteed” by the federal government. While it is true that the SBA loan program may provide an opportunity for an individual or small business to obtain funding that it would not normally be able to procure through normal channels, the process is not “easy” by any means.
To secure an SBA loan the lender will review two factors: the strength of the business and more importantly the credit strength of the borrower/owner. To this end, borrowers will find it much easier to obtain funding for the acquisition of an existing business with a proven track record than attempting to fund an unproven “startup company” with no financial history.
In analyzing the strength of the business the lender will typically require 1) a formal business plan describing the nature of the business, annual sales, number of employees, length of time in business and ownership of the business and 2) business financial statements including complete financial statements for the past three years and current interim financial statements.
In evaluating the strength of the borrower, banks will require and will examine the personal financial statements of the owners, partners, officers and stockholders owning 20% or more of the business.
Contrary to the beliefs of many new business owners, it is almost impossible to establish “business credit” for your new business that is not directly and heavily tied to your personal finances. A lender will also typically further require a personal guaranty from any and all owners of the company.
Eric R. Thiergood, Sr.
Email: [email protected]