Turning the Tide on Financing

The Business Brokerage Press just released the results of a nationwide survey that confirmed what seems to be a no-brainer: A lack of available financing was the biggest obstacle to someone buying a business in 2013. You may be thinking, "No kidding. If I could get a loan, I could buy any business I wanted," but buying a business is vastly different than buying a house or even commercial property. For starters, the collateral is very different when you're buying a business, and a lot of established businesses closed their doors during the recession leaving lenders holding the bag. Thankfully the tide has begun to turn in 2014 as the Small Business Administration (SBA) has started playing ball again.

According to the highly regarded Coleman Report, SBA 7(a) lending is currently on its fastest pace since 2011, when temporary breaks such as fee waivers and an increased government guarantee boosted the loan program to record levels. Congress raised the maximum size of 7(a) loans from $2 million to $5 million in 2010, and this is a big reason why the overall volume is up. Nearly $18 billion in 7(a) loans were approved in 2013 and additional temporary funding was signed into law a few weeks ago, so these dollars should be available for quite a while.

This is good news whether you're a buyer or a seller. Now, lenders can afford to assume a little more risk when they know they have the SBA guaranteeing a portion of the loan. And while seller financing can be a great way to finance a business purchase, most sellers would prefer to transfer the risk to a bank if they have the option.

A business broker's role in all this is to help make sure you have a good, "bankable" deal that finds the right home. Lenders and their loan committees sometimes become wary (and weary) when the same applicant tries again and again for a loan after being repeatedly declined and so it's important to have concrete evidence that the deal is packaged well before you even approach them for a loan. Business brokers also keep track of which lenders are making which types of business loans - not all lenders look at deals in the same way and not all banks have an appetite for your industry.