If you’re a small business owner or someone looking to BUY or SELL a small business, you might be very interested in a recent change from the Small Business Association (SBA) that means you might not have to sell three kidneys in order to get a loan! 😜
Here are Five Fast Facts on the SBA’s recent equity policy change:
- ⌛ The Old Way - In the past, if you were buying a small business, you had to buy the whole kit and kaboodle. You took over both the good and the bad (like debt or lines of business you didn’t need or want), and the seller walked away with a hefty check that you probably borrowed as an SBA loan. Bye bye, kidneys!
- 😒 The Problems - Problem was, the seller (and their key people) exited the business right away, meaning the buyer lost all of the history and lessons learned, and the very people whose skill built the company into something worth buying. The buyer also had to take the bad with the good and just hope to come out ahead in the long run. Punk or not, you’d better be feelin’ lucky!
- 🆕 The New Way - The SBA changed the structure of their loan deals in December, opening up some great new options. Now the buyer can choose only certain pieces, meaning they can take the good without the bad (if the seller agrees, of course). They can also offer up to 20% equity for the seller as part of the deal, and they can use a personal guarantee of the loan rather than collateral. This is more flexibility than a contortionist on America’s Got Talent…but without the sob story.
- 😁 Buyers Benefit - The buyer gets the pieces they actually want, and the option to keep the seller (and other key employees) around with real skin in the game to make the transition smoother and help the business continue to succeed. They also get longer repayment terms and have to borrow less because of the equity offer.
- 👍 Sellers Benefit - The seller gets to ensure their baby is in good hands, and can provide their guidance and experience as the new owner takes over. And, by keeping a small ownership stake, the seller benefits financially from continued success, too. Why retire if you can both retire and get income??
🔥Bottom line: This is a game changer for both buyers and sellers of small businesses! It’s pretty rare when everyone wins, but it seems like this is one of those times.
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