The business-buying market is in a boom right now. According to BizBuySell’s Insight Report, business transactions exceeded 2016 highs by 27% with 9,919 closed transactions reported, compared to just 7,842 in 2016. Not only are the number of sales increasing, the transaction cost is increasing as well. Asking prices jumped 11% to a median of $250,000 and sale prices increased 14% to a median of $227,880.
As business acquisition has boomed, lenders have taken note. Recently, the SBA made a number of changes to its loan guarantee program that are meant to improves access to business acquisition loans. They amended their flagship lending program, the SBA 7(a) loan, with a number of changes to its standard operating procedure, effective January 1, 2018.
These changes include lowering the equity requirements for acquisition loans, extending the seller standby rule to the life of the loan, and instituting a new SBA franchise directory that lists which franchises are eligible for SBA financial assistance. Each of these eliminates some of the red tape that previously inhibited borrowers, and creates opportunity for a more diverse range of borrowers.
The lower equity requirements, for example, slashed equity injection requirements down to 10% from a previous 20–25%. This allows banks to finance 90% of the deal as long as 5% of buyer equity is in cash and the other 5% is from a seller note. By weakening the requirement on buyers, the SBA has effectively opened up these kinds of loans to a broader audience.
Not all businesses, however, will fit the new parameters of the SBA loans. They are more open, but still fairly restricting. Forward-thinking lenders are aware of this, and have made serious strides to help fund entrepreneurs through marketplace lending and loan aggregation.
With the SBA making strides to open up their lending practices, modern lenders helping entrepreneurs fund their acquisitions, and business acquisition hitting an all-time high, now is the perfect time for entrepreneurs to acquire those franchises or small businesses they’ve had their eyes on.