EP #6: Financing Your Business Dream: From SBA Loans to Seller Financing

Ready to purchase your dream business but unsure how to fund it? The financing landscape can be complex, but understanding your options is the key to a successful acquisition.

SBA loans represent the most common path for small business acquisitions, though many buyers misunderstand how they work. These loans aren’t provided directly by the Small Business Administration but rather guaranteed by them to lenders, reducing risk and making banks more willing to finance goodwill-heavy businesses. The process typically takes 60-90 days and requires extensive documentation from both buyer and seller. Current rates hover around 10-10.5% (prime plus 2.5-3 points) with terms of 7-10 years—reasonable considering the largely unsecured nature of these loans.

Seller financing plays a crucial role in many business acquisitions, typically representing 10-20% of the purchase price. When sellers finance part of the deal, it builds buyer confidence by demonstrating the seller’s belief in both the business and the buyer’s ability to operate it successfully. This arrangement also helps sellers manage their tax liability by spreading income over multiple years rather than taking a large capital gain all at once.

Alternative financing options expand possibilities for prospective buyers. Home Equity Lines of Credit (HELOCs) offer quicker access to capital with less scrutiny than business loans. The Rollover for Business Startups (ROBS) program allows entrepreneurs to use retirement funds tax-free by investing in their own business. Private lenders and private equity represent additional options, though each comes with distinct considerations regarding interest rates, minimum business size, and control.

The size of your down payment signals commitment to both lenders and sellers. While SBA loans typically require a minimum 10% down, putting more down reduces monthly payments and demonstrates greater commitment. For seller-financed deals, a substantial down payment becomes even more important, as sellers rarely finance more than 50% of the purchase price due to the inherent risk they’re taking on the buyer’s operational abilities.

As artificial intelligence continues to transform the business acquisition landscape, tools now help brokers analyze financials, develop valuations, and identify suitable matches. However, these technologies should complement rather than replace experienced professionals who understand market conditions and standard deal terms.

Ready to explore your financing options? Visit horizonbrokers.com or call 703-910-7384 for personalized guidance on making your business acquisition dreams a reality.