SBA financing sources
 

 

Several new business buyers in the United States use SBA (Small Business Administration) loans to fund their first business purchase or a line of credit. There are some definite pros and cons for using these funds that business buyers should be aware of. I've listed 5 of the pros and cons so you can begin to evaluate the process for yourself. Remember all lenders expect to be repaid and businesses are not 100% fool proof.

1. All owners of 20% of the business are required to give a personal guarantee- When you go to your business banker they are going to request you to sign an application and a loan that commits you to a personal guarantee for the money you are borrowing. The bank is guaranteed by the federal government that they will get their money back if your business fails. On your loan documents it will state the percentage of the guarantee by the SBA. In the event of your default they can legally pursue all borrowers with personal guarantees.

2. SBA 7(a) loan lends up to 90% of the loan to value of your business purchase with real estate- Lenders have now increased their loan to value lending limits to encourage more business buyers and entrepreneurs to stimulate the economy. Not all lenders will lend up to 90% of the purchase.

3. Legal aliens are entitled to SBA lending - Legal aliens in the U.S. are entitled to the SBA program - you do not have to be a U.S. Citizen to get an SBA loan. In the underwriting process SBA lenders do look for time that aliens have been residing in the United States and other characteristics of the borrower that will make sure they can fulfill the terms of the loan.

4. A SBA loan can provide money to business buyers that may not be able to them in other ways - Financing a business acquisition is tough and the SBA loan can help. The requirements for SBA lending maybe less than a conventional business loan because the federal government is securing a portion of the financing.

5. Only about 10 % of business buyers use the SBA loan for a purchase - According to a recent survey, only about 10 % of all buyers of businesses will use SBA financing to purchase a business. There are several other forms of financing that business buyers can use that reduce personal risk for business buyers.

6. In the event of a personal bankruptcy including an SBA loan, borrowers can not receive another SBA loan until they have paid back the guaranteed portion - I've seen a lot of questions on the internet about Chapter 7s and SBA financing.

Do you want to learn more about how to buy a business? I have just completed a brand new guide in buying a business "The Corporate Raider's Guide to Creatively Financing Your First Business." Download it free here: http://www.corporateraidersguide.com

Article Source: http://EzineArticles.com/?expert=Ted_E._Sanders