SBA Loans: Navigating the Path to Buying or Selling a Business with Andrew Gazdecki and Ky Pratt

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We are live going on everybody. Great to to have you all in here. There's a lot of registrants for this webinar. We're super excited. We'll go ahead and get started. It looks like we got a good amount of people in here for today. And keep in mind as we are going through this, feel free to ask questions. We'll do our best to get to all those. But without further ado, Kai, you want to I kick this off?

Yeah, absolutely.

All right, so we're going to change it up a little bit. Kai is sharing his screen. I'm going to drive on the first few slides. Without further ado, we're going to be talking about SB SBA loans today. So navigating the path of buying or selling a business kind. Next slide agenda we're going to do brief introductions and then we'll really dive into the main part, the reason all of you are here which is navigating buying a business, what are SBA loans, how to qualify for SBA loans and then SBA loan best practices. Kai is going to be going over all this. So super excited. But without further ado, brief introductions for those of you that may not know us, my name is Andrew Gazdecki. I'm the founder and CEO of Acquire.com before this business I had founded two other startups. One called Business Apps, another one called Altcoin. Business Apps was a drag and drop mobile app builder for small businesses. We were one of the, we were named one of Inc. 500's fastest growing companies in America. That was a really fun ride. And after that business was sold, going through the acquisition process led me to start Acquire. Com. So here I am.

Wonderful. And I'm Kai. I'm an acquisition success advisor here. You may have seen me on some of the recent webinars of late. My career spans in SaaS working with client success teams. I currently work with a lot of the sellers and buyers here on the marketplace helping them facilitate the acquisition journey and some notable transactions below. Just to give context to the numbers, these are the exit prices with the respective multiples around them. Excited to talk to a lot of you today about one element of potentially achieving an acquisition which is SBA loans. So let's dive into it and let's tell everyone a little bit about Acquire before we get started. So pass it off to you Andrew.

Yeah, so for those that may not be familiar with what we do at acquire.com is we are essentially building the world's most founder friendly startup acquisition marketplace. So we make it easy to buy and sell SaaS businesses specifically, really working to streamline every part of the process and highlighting today the financing aspect. And over the past four years, to give you a sense of our impact in the market, We've helped over 2,000 startups get acquired. We've done over 500 million in closed transactions, over half a million registered buyers on the platform today. So lots of liquidity on the platform. We're currently helping over 2000 startups find buyers and get acquired. We've helped startups in over 100 plus countries get acquired as well. So we'd like to say around here we're, we're just getting started.

Absolutely. All right, let's dive into it. Before we actually get into the finer details of sba, let's talk about some of the core elements of buying a business. So this is often overlooked and perhaps with a marketplace environment, it's maybe presumed there's a kind of a free flowing casual element to all of this, perusing the marketplace. But as a buyer, it's really important to solidify these key points here. So first being understanding what you're looking for as a buyer as you come into any listing environment, knowing exactly what you're looking for certainly does help the more you can adhere to point number two, which is articulating your process, what you like to look for, what's the core data you like to see, what is your path to funding, which topic today that really does help you stand out in comparison to other people. And then winning deals with speed. There is a common saying here that time kills deals and time can certainly win deals if you're on the speedy side. This all culminates to point four, which is your reputation as a buyer on the marketplace. And not just within Acquire, but just within the, the tight knit community of acquisitions entrepreneurship. Andrew, yourself, being a two time seller, how much did the community seem tight knit to you? And how much have you been, you know, brought to light about how connected everyone is? I mean, most recently you were just at a disaster event. So tell us a little bit about the community itself.

Yeah, definitely. The SaaS acquisition community, it's smaller than a lot of people would think. And we typically will see a lot of the same buyers on deals, we'll hear different experiences with buyers. So it's, it's big. And when you think about your reputation as a buyer, you want to be known for a lot of the things that you're outlining, which is having a clear process, being easy to work with, being able to move quickly Just simple things like doing what you said you do, not wasting people's time. Because if you do that too many times, you know, word will get out.

Yeah, absolutely. And, you know, at the end of it all, there's only one buyer for each business. So it is a bit of a competition. Andrew, how much did a buyer's togetherness or their readiness play a part in you choosing the buyers for your previous businesses?

It's huge. Is one of the first thing that every seller is going to ask is, you know, what is your plan during due diligence? What does that look like when I sign this loi? What can I expect? And having a clear picture for the entrepreneur that you're going to be buying their business from is almost necessary because you want to keep them. You want to have them be confident to work with you over other buyers. Because like you said, a lot of these acquisitions have a lot of buyers submitting offers. And we see it all the time. Kai, with deals that we're representing, other things is, you know, when we do see offers from buyers, we'll speak to them directly on behalf of entrepreneurs to gauge what we think of them and form our own opinion. So being organized, prepared, having a good plan as you go into due diligence post acquisition, what do you need for transition? Now, all that can seem like a lot, but if you think about it in advance, it'll serve you much better when you go and submit offers for businesses.

I agree. I agree. Absolutely. So as we look at the core of a deal, there is the deal structure itself. And certainly if you can find yourself a deal that is 100% cash on close at or even above your asking price, that's your dream scenario. But we all know that not all dreams come true and not all dreams are reality. So within the web of this diagram here, we have other deal elements. If you were at our webinar a couple of weeks ago, we talked about seller financing. There's also other deal conditions such as earnouts and holdbacks. And then we have on the bottom left corner here, the ability to pursue a loan. If we're putting these in some sort of a stack ranking, if a loan can be achieved, it almost does function as cash on close. So there is some benefits to someone being able to achieve a loan, but it's all about how you achieve that loan. Andrew, if a buyer's coming to you saying, hey, I don't have the cash on hand, but I am going to pursue a loan, is that something that you're willing to entertain? Does that give you any sort of hesitations just on the early onset. How do you feel about those types of presentations?

100 I think it should be expected more than anything. A lot of buyers obtaining financing is very common with these level of acquisitions. I think as an entrepreneur looking to sell your business, the more you understand the process, the better. The problems that I see is in this example, not understanding the SBA loan process, the timing, the complexities involved in it, and then also the seller's role in obtaining the loan as well, but just understanding from a high level how long is it going to take? What should the seller prepare on behalf or for the buyer to secure the loan? I can, I think that goes a long ways. But 100 I think you should expect a lot of buyers to be looking to obtain financing.

Yeah, I agree. I agree. And to the comments, Clement, I see you see your point there. Absolutely. Buyer reputation really matters, seller reputation to even it out as well. The better you conduct yourself, whether it's articulating the path to a loan or just articulating your process, that's going to help you in the long run build your reputation over time. We get into the topic of note today, which is the SBA loan. So just some definitions, just some general guidelines around them. The SBA is Small Business Administration is a program within the United States that is seeking to better the economy, really open up some avenues for businesses not only to be bought but even to succeed so that the loan itself can be used outside of acquisitions and is often used just as funding to help the business grow. But it's often sought after because of flexible terms and generally low interest rates compared to other avenues. There are naturally stringent parameters. If anyone in the chat has gone through this process, you know that the process is rigorous and generally hard to achieve. The lenders themselves are going to be your banks and your credit unions, different financial institutions. And you see some other general specs here on the SBA process. The point here is with SBA, there are some assurances to it, to where the SBA guarantees the lender a certain portion of the loan is going to be repaid back no matter what. And I believe that percentage is around 75 to 85% of the loan. Obviously, there's a lot that goes into this about ensuring that the buyer doesn't default and the loan can be repaid, which leads to why the parameters are so stringent. But one of the things here I saw in the chat as people were saying, where they're from, a lot of people in the U.S. that's good. You do need to be in the U.S. the business needs to be in the U.S. for this and we'll talk about the ins and outs of it moving forward. There are several types of SBA loans. For a lack of getting into the jargon, we're just going to focus on SBA 7A. This is the most common type. If you look at point three here, you see the inclusion of companies with real estate. Well, we all know with SaaS companies there usually isn't a real estate component. So that's part of the situation here is I wouldn't say SBA is foreign territory versus but I would say it's less traveled territory in trying to achieve a SaaS business which might not have a real estate or a brick and mortar solution with it as well. So diving into qualifying for SBA loans, Andrew, I'm going to pass it off to you. Let's talk about some of the items that you can get ahead of by just going through this checklist as being a seller.

Definitely. So on the right hand side we have a general list of questions to ask yourself. If you're wondering if your business qualifies for an SBA loan, you might be asking why should I even try to qualify for an SBA loan? If you're going to go to market and sell your business, having it approved, pre approved for financing can really broaden your pool of buyers. When you broaden your pool of buyers, you're going to typically receive more offers and a more favorable term. So quickly growing going through this list, is the business US based that's going to be a cutoff right there. So you have to be based in the United States and you typically have to be running and be in operations for three years or more. And when you think about the organization of your business, you have to have three years of tax returns as well. These are non negotiables. If you aren't based in the United States and you haven't filed taxes the past three years and you can't easily prepare these documents, you unfortunately won't be able to have an SBA loan approved to buy your business. And also is the business profitable? Is the P L clean? Because you have to remember the bank is issuing a loan to another person to buy your business and they need to see a clear path for the buyer to be able to pay back that loan. So if the business is not profitable, it's generally not going to be approved. Going back to the list here, key items tax returns. Clean, clean P and L and then what Is the debt coverage ratio. The debt coverage ratio essentially means is there enough cash flow from the business to pay back the loan? So if it's not profitable, it's going to be hard to convince a bank that a buyer is going to be able to use the cash flow from the business to pay back the loan. So this is a pretty short list. Some banks will have a longer, more detailed list. But if you said no to any of these items, you probably won't be approved for an SBA loan.

Yeah, absolutely. And just to clarify too, these are early qualifications. If you're considering selling your business or buying a business, these are some of the early checks you want to say yes to to even decide if pursuing this SBA loan path is worth it. I see a couple comments here in the chat. Just let me scroll up to it. In terms of Andrew, Andrew Nasseri here, he said, if I'm looking to acquire a business, that's 5 million plus, for example, 10 million. Can you talk about using a mix of cash down SBA loan and seller financing? So Andrew, to that question, I can't say specifically on the distribution, but when it comes to additional deal structures on sba, the SBA does take priority. So if you think about a financial institution, their main priority when issuing a loan is making sure that they get that loan money back. Otherwise it's a poor business model. So when it comes to seller financing, often those parts of the deal structure need to be postponed, especially if the business encounters any cash flow issues. So again, I can't answer specifics as I'm not a lender myself, but it is possible. You just have to understand that the SBA can take priority in how this money gets paid back. All right, and we'll take some of these other questions towards the end of the presentation too. Andrew, let's go to buyer checks. As a buyer, what do we have to look out for in the SBA loan qualification path?

Definitely. So an important thing to note here is if a business is pre qualified for a SBA loan, you also have to remember that the buyer has to also qualify to be able to utilize that loan. So going over what is the buyer's credit history, can the buyer and the business pay back the loan? That's probably the most important. Again, the bank needs to see a clear path for the buyer to be able to use a cash flow from the business to pay down the loan. What is the business plan of the buyer? What are the projections of the business? Can the buyer collateralize and does the buyer have existing loans so the bottom one is probably a good point to bring up. You cannot take out two SBA loans in the same industry. So if the buyer has already used an SBA loan for another business, there's a likelihood they won't qualify for an additional one to buy your business. So going through these questions with the buyer that's looking to acquire a business is critical, because what you don't want to have happen is your business does qualify for an SBA loan. You move forward with a buyer under an offer that they submitted to you, and then they don't qualify for the loan, and then the whole deal falls apart. So going through these questions up front can make everyone's life a lot easier, in my experience.

I agree. I agree. There are two types of people in the world. There are those that are prepared and those that prepare after they get some sort of confirmation they're heading in that direction. You want to be the former. You want to be prepared. So, you know, as a seller and even a buyer, it's a waste of anyone's time. If you decide to pursue SBA loan, you don't realize some of these qualifications are necessary. And then you come to a conclusion that you can no longer try to pursue the SBA loan because of lack of collateral or lack of business plan. These are items that the banks and lenders all look at to gain confidence of if this business is lendable. So come prepared, do your homework early, and that is your saving grace in, I would say, expediting the timeline in any way possible. So let's talk about some best practices here, because I alluded to it that the timeline itself is part of the, I guess, risk here. This is a long timeline if you are to go down this path. But you want to have some of these items checked off. You want to know who the lender is. You want to know if there's some experience between the buyer and the lender, if they've, if they've done this before, and even to the point of can the lender provide some sort of proof that they've been working together or they have success in the past? Andrew, if I am a seller and I'm asking the buyer these types of questions, am I asking too much? Am I asking things too early? How do you feel about these types of asks between a seller and a buyer in conversation?

I think it's completely appropriate because again, with a lot of these businesses, when you're approaching a owner that's selling their business, they're typically going to have a lot of offers from different buyers. So when you're asked these questions, you have to put yourself in their shoes. And what you're doing is you're due diligencing the buyer. So you don't go down a process with a buyer that's just not going to be approved for a loan or a buyer that maybe says they have a loan in hand, but they really don't. Or they've been pre qualified by XYZ bank, but they really haven't. So I think all of these are completely appropriate and candidly necessary because the last thing you want to do is sign a letter of intent, spend a couple months going down this process with a specific buyer, and then learning about any of these questions. Not being cleared with the bank can completely derail an acquisition. So I think it's critical.

Yeah, I would agree that it's your business you're trying to sell. When you sign an ally and you lock into exclusivity, you are essentially saying, I'm no longer interested in pursuing other buyers and there needs to be a lot of intent behind that letter of intent. So asking these questions not only is necessary, but it gives you a nice read on the buyer of how prepared they are and how invested they are in this business. And that really does matter is both parties have to be invested. And if there's any inkling that there may be just exploring and they're not serious, that is the flag you need to say, wait a sec, you know, I might not want to go down this path at all with this specific buyer. Some more questions for you, Andrew, and I want you to answer these in the seat of a seller, since you've done this before. But what would you say that the main risks are in pursuing an SBA loan?

The main one I see is generally it's, it's time, it's lengthy. So acquisitions time kills deals. Right? Sometimes SBA loans can take, you know, three, four months to secure and close. And so during that time, is the acquisition going to fall apart? Are you adding any additional risk to closing? That's generally the biggest one that I see is just acquisition, not closing. And that could be because the business doesn't qualify, the buyer doesn't qualify. Those are the two big ones, but there's other ones below that. That's why it's so important to do due diligence on both sides, making sure the bank will work with your business. You qualify based on all the points that we covered. And then also the buyer as well, they understand that they're going to have to put typically 10 to 20% down. Do they have that capital? Will the bank work with them? Just being extremely prepared going in can help you avoid a lot of these mistakes. But the biggest risk is, you know, you work with a different buyer or your business doesn't qualify and then the acquisition falls apart.

Right, right. And then what would you say to the just overall probability of achieving SBA loan? While loans are certainly common and they enable the ability for financing, is SBA loan something that you see often or is it more of a rare case and only with really high quality businesses?

It's generally with only high quality businesses. So if your business qualifies for an SBA loan, it's typically a great acquisition. Not all the time, but it's going to be on the upper end of profitability, quality, durability. So you're going to see SBA loans typically with larger transactions, not say, you know, low six figures, typically in the low seven figures.

But.

So that's, that's kind of my initial take.

Yeah, yeah. Great. And then the last question. I know you and I have worked on several deals when in the seller's seat and talking to buyers, who is really responsible for achieving the loan and, and how much effort should you put as a seller to work with the buyer to help them have what they need?

Yeah, that's a good question. I think we've been a part of some transactions where that line can get blurred sometimes, but it's the buyer's responsibility to achieve the loan. But it's important for sellers to also realize there's certain documents that the buyer just has to have, like your financials, specific detailed information about the business. You're going to have to share that with the buyer for them to even have a shot at securing the loan. So both the seller and buyer are going to have to work to secure the loan, but it's ultimately on the responsibility of a buyer.

Yeah, I agree. And it's as a seller, if you prepare for sale with your early diligence documents, your effort in this is simply sharing a document. You don't have to put anything together. And that is the benefit of preparing for sale being premeditated and what you're trying to do in an exit. And it's only going to help you because if you can get qualified for an SBA loan and you have a buyer who's serious about it, it is a very nice option to be able to achieve if you can achieve it 100%. Some other considerations that this is more so one of my biggest Philosophies in kind of the acquisitions world is just putting yourself in the other party's shoes. So as a seller, I want to put myself in the buyer's shoes. And this comes to that previous question, which is, whose responsibility is it? It's the buyer's responsibility. But at the same time, if I'm in the buyer's shoes, I need help, I need these documents to even understand the feasibility of this all. And then also understanding, as a seller, I might be just focused on exit valuation. This is my asking price. This is the only thing I'm going to accept. But if SBA comes into the picture, there are limitations. And it's not just a maximum five. It's based upon the evaluation process of the business. There are loan limits. How much can the buyer afford? What is the buyer's business plan itself? And how does the business project with this implication of time, as you mentioned, Andrew, you certainly need to have some confidence in the business, because if this is taking 45 to 60 days or maybe a little bit more, those are several months that go by in the business where naturally both the buyer and the lender want to see the most recent months financials. So if you're riding a wave and you're maybe trying to exit because you understand something's heading in the wrong direction, that might not be the best information to have available to the SBA loan. But it's got to be necessary to be there is transparency and confidence in the business. So this timeline itself just puts some natural tension in the deal. Andrew, in your past deals, how long were your diligence periods?

It depends on the buyer, but sometimes a couple of weeks, sometimes a month. That's much longer.

Yeah, certainly. And we bring in this third party, which is why this timeline gets extended. If you were in a period of diligence all the way to close, that was over, you know, two months, let's say 60 days plus. How would you kind of mentally prepare for all this?

Again, from the entrepreneur and the seller seat. You know, you gotta understand the timeline, like you said, and you gotta buckle up. It's gonna be a few months. So make sure you do everything you can to make that process go as smooth as it can. Because sometimes with the SBA process, you can have delays that might not be intentional, but caused because you send over the wrong documents or you take too long to send them over. Another thing I would just prepare for is what you touched on is, again, it's going to be a few months until this is going to close. So that's a great time to do what you can to at least keep the business growing at what it was before. You don't want to see a dip. You don't want to see things completely fall apart because that could derail the SBA loan process as well. So this could be a great time to really focus on the business, if you can, to make sure that it continues to grow or at least continues to operate like you've been advertising it to the buyer.

It's one of the things you, you've taught me early on in my career is even though your focus is to exit the business, your main priority is still to run the business. As long as the business is yours, it's your responsibility to run the business. Because the moment it heads downward, that makes it that much harder to sell, or in some cases, impossible to sell, or in this case, unlendable. On the business itself.

Yeah. 100. I think it just brings the saying to mind, which is, you know, the acquisition is not over until the money hits the bank. So I think the biggest risk, when you think about the timeline or another risk is, is you secure. You go under loi. This is maybe just any acquisition, but you go under loi with the buyer, you're really confident, and you take the foot off the gas and the business starts to decline or doesn't perform as well as it has in, you know, the quarters behind you. That right there can be dangerous for any acquisition, but specifically when an SBA loan is. Is being secured.

Yeah, I agree, agree. In terms of, you know, what's next. Let's head to some Q and A. I know we have a lot of questions here in the chat. Wanted to take one early and then I'll pass it to you. Andrew. The question is, can we acquire SaaS, businesses or technology consulting firms under SBA? So in terms of the SBA process, you really do want to talk to an SBA lender. There are certain things that they look for in terms of deeming a business, I would say, for lack of better words, a business. But I believe the answer to your question is yes. It just depends on the intricacies of the business. Is it successful? Has it withstood the test of time? Can they show their tax returns over three years? Is there a good sense that this business is heading in the right direction regardless of what it does? From my experience, because of the lack of physical assets such as real estate, there is a alternate path that has to be explored with the buyer on what are they actually putting down for collection collateral, because some of the other elements that are maybe intangible to the business don't necessarily qualify. So that's as much as I can tell you right now. But it really does depend on some of the qualities of the business, on how is, how is it going to succeed or not.

I like that. I'm going to take a question from the crowd. This is a fun question. How would you prepare if you were buying your first business? What would you do? What would you learn? How would you underwrite the business, research the market, and evaluate the strength of a business? So that's quite a bit. I always like to baby step into kind of anything. So when I hear this question, I always recommend try buying a smaller business. On acquire.com, we have SaaS, businesses of all sizes, so you could focus in on a smaller one where you can just go through the motions of getting to know the seller, doing due diligence on the business, submitting a letter of intent, submitting a asset purchase agreement, going through escrow and closing, transfer of all the assets. That alone will teach you so much. And then if you make some mistakes or you miss something, you're not gonna, you know, it's not gonna be like the world is ending because you sign an SBA personal guarantee. And because when you go after larger businesses, there's so much more at stake. So that's just I wanted to call out this piece of advice is you can start small, baby step in acquisitions, acquire something on the smaller end, use it as a learning opportunity. It'd probably be the best learning opportunity you have if you're serious about acquisitions, and then from there move on to something larger. Second, that's what I would personally do. You want to add to that, Kai, I'm not sure if you have any thoughts on what would you do if you're preparing to buy your first business?

I think I would agree with you. You want to start moderate to small. There's always the idea of making it rich quick. But in terms of making a rich quick, across the course of history, there's usually some quick negative implications to that as well. So don't, don't bite off more than you can chew and take your time and developing your process. This being a first business that I am hypothetically buying, this is the start of my book in creating my reputation. So I'm developing my process. I'm developing what the core documents I want to look at. And it's nothing wrong with starting small and then eventually making it up the ladder to bigger and bigger businesses. So that's more of my mentality and philosophy is a moderate approach, but absolutely. Start now. Start. You know, low risk, low stakes in terms of if you were to buy a business and it perhaps broke even or didn't work out, there's not a lot of downside risk to you in that scenario because it's a light pressure scenario.

I like that. Okay, I'm going to knock out some basic questions and then we'll go back to some more complicated ones. All right. What's the average time to apply and get approval for SBA loans? This one's pretty straightforward. Typically it's advertised 30 to 90 days. Some banks will have a SBA Express option, and it really depends on how much you can prepare documents in advance. One technique that I've seen work really well with banks is get an understanding of what they need for approval and send it all over at one time so they have as much information upfront as possible. And that could speed things up quite a bit. But they can be extended to four months, five months, even six months. I haven't seen one take that long. But it's possible because you send one piece of information, the bank looks at it and they go, no, that's wrong. And then that process back and forth can take quite a long time. Kai, I'm not sure if you want to add anything to that question.

I do. It actually sparked an idea in terms of the length. Why is it concerning to have a long timeline? And from a seller's perspective, perhaps the concern is, well, what if the buyer backs out or if the buyer decides they no longer want to buy the business? With the SBA process, there are some mechanisms in place that deter the buyer from backing out. There are some fees that need to be paid. There are some guaranteed fees that need to be paid regardless of if the deal completes or not. So there is some assurance there. But there is also the fact that you need to get to know your buyer. But between those two things, as long as you feel good about the buyer, you feel good about the process, it's not something that's a shot in the dark. Perhaps this timeline is something you can endure and kind of attenuate those worries you might have of what if the buyer backs out?

Yeah, one small tip there, Kai, and we talk about this all the time. Weekly check ins. Have weekly check ins with your buyer. Like, yeah, just talk about the weather. If you have nothing going on, there's no updates. But just that constant communication will make the buyer feel better about the acquisition. And then obviously you as well, as the seller of the business. Okay. Anything else you want to add, Guy?

Just, it's, it's comical to me. I mean I, I work just like you and in the marketplace every day the most core elements of buying and selling business is very logical. So communication weekly check ins, making sure that all parties are on the same page, all that stuff. Don't overlook that because it really makes a difference.

100. Okay. How much of a down payment would I need for an SBA loan? That one's pretty straightforward. 10 to 20%. Each bank and each acquisition will have a different amount that's going to be required, but that's what you can expect. You want to add anything to that.

It'S just a stake in the game. Right. They want the buyer to have some stake in the game. On, on the alternative side, they want the seller to have some stake in the game too. And while it has nothing to do with the down payment coming from the seller or anything like that, they are looking for, you know, what is the willingness of the seller to maybe stay on to some capacity key employees, things like that, willingness to sign a non compete. It all comes down to stake in the game and making sure that there's a nice clear path. And this loan getting paid back to whatever the lender is, whatever the bank is, the whole acquisition.

That's a great point because what they're doing is trying to de risk acquisition. So the more they de risk acquisition, the more they can de risk the odds of them not getting paid or something goes wrong post acquisition. Because the bank is thinking kind of like the buyer, where the acquisition closes, they still need to recoup that loan and a good amount of it, the whole thing. So they want to make sure you know, the seller's not going to run off and start a competing business. And that shrinks the business that the buyer and the loan just secured. If there's an opportunity for the seller to help with the transition, all of these small details can help. Okay, next question. How can I make sure my interest rate is competitive for this one? I would say just shopping the potential loan to other banks can be huge. Just, just understand there's a lot of banks that work on SBA loans. You can have regional banks, you can have the big banks, you can have specific, let's call medium to large banks that are really well known for SBA lending. They're all going to have some sort of different process. There's elements of it that are the same but different interest rates. So chat with as many as you can and understand what their process is and what interest rate you know, they would look to charge?

Yeah. I would say most SBA lenders will at least give you some sort of semblance on the pre approval. A lot of them also do require assigned LOI to then dive further, but you don't need to go that far. At least have the conversation kind of understand their experience because similar to a mortgage broker, you want to work with the lender that has the most experience, that has the most connections. So you can compare the different options and different banks that may be saying, hey, yes, I can provide this loan.

Completely agree. Now just go into the audience right here. Do we have any recommended lenders to work with that we're familiar with that are open to working with SAS online business acquisitions? Absolutely. We have a number of different banks. We're happy to share those. Some of the top of my head, Live Oak bank is a great bank. Cross river bank is great. But again, also your regional banks, all of them will generally approve the same type of SBA SBA loan. The business just needs to qualify from a high level with one of the major banks and all of them will generally support the loan. Let's see. I'm going to pick another question or two from the crowd and we'll go back to. Let's go back to these. Okay. Our SBA loans easier to get than traditional financing. While why generally, yeah, SBA can be easier to obtain than traditional bank loans because the SBA essentially guarantees a portion of the loan which reduces the lender's risk on the acquisition. So that's huge. So this guarantee can make it more attractive for banks to approve these loans generally. In my experience, it can be pretty difficult to secure large amounts for SaaS acquisitions. Generally, SBA is going to be your most common option. For that reason alone, it's guaranteed by the sba. So banks are more willing to. To issue these loans. Kai, did you want to add anything to that or was that, was that a good, good response?

That was a great response. I can certainly add some and just echo that. It is difficult. I would say in a recent transaction, we were exploring SBA as an option. We had an SBA loan actually secured. And there are other factors that come into why or why not the buyer would take the SBA loan. And you had mentioned it earlier, but you can't really have two SBA loans in the same industry, let alone. You could imagine the process of just getting two SBA loans in different industries being quite rigorous. So given the size of the Business and the loan at hand, the buyer and the seller agreed to go an alternative path and work out a different deal structure because the SBA loan might be better suited for, in the buyer sense, a bigger opportunity. And so this is the crux of communication, is you want to make sure everyone's on the same page. We understand the reasoning behind why a certain path is chosen or why it isn't. It's a difficult path. It provides implications to the buyer and future opportunities. But you also have to make sure whatever deal structure you're working with with the seller, the seller still happy, because otherwise that deal is not going through 100%.

One thing to note on that too is the additional SBA loan rule is brand new. I just heard about it. So in the past you can only have one SBA loan, but now you can have a second if it's in a different industry. So that's a, that's a new law. Maybe look that one up. Okay. As a seller, can I provide seller financing in addition to the buyer using an SBA loan? Are there limitations or restrictions? Quick answer to this is yes. The seller can provide seller financing in combination of an SBA loan. The SBA usually will require the seller to subordinate their loan to the SBA loan, meaning the SBA loan will be the first to be paid back if there's some form of default by the buyer. And generally, seller financing can't exceed 50% of the purchase price, in my experience. Kai, I'm not sure if you want to add any to that one. Can you use seller financing with an SBA loan?

Yeah, you certainly can. It just, it comes down to that SBA loan taking priority. So in a pure seller financing deal, you know, cash down seller financing between buyer and seller. Your seller financing payments usually start month, one after sale. In this case, it would be much different because of the position the lender takes in the repayment. Kind of waterfall, if you will.

Yeah, good points. How does the SBA view businesses with heavy reliance on intellectual property or intangible assets when assessing loan risk? This is a good question. I would say generally, yeah, the SBA may view businesses with significance, significant reliance on IP as higher risk, but generally what they're looking for is strong cash flows, strong profitability and durability. So time in market, is there a bunch of revenue that's up and down? Is the business unprofitable one year and then wildly profitable the next? What they're looking for is a stable business that can be easy to predict, how it's going to Perform once the acquisition closes, they've issued the loan to really ensure again that they're going to be able to make their money back on their loan. So it can. But I wouldn't say it's a deal breaker or, you know, a huge concern. It wouldn't be above, you know, strong cash flow, profitability of the business.

Yeah. You know, there was a question earlier in the session of how do I go about even evaluating a business? And while that's a giant question that could be a webinar in itself, the lenders are doing exactly what you're asking. Right. They're making sure that they will get paid back on the loan. They're making sure what they're lending on is high quality. They're looking at items that may have a lot of parallels to what you would look at as a buyer. Right. What is the consistency of cash flow? What is the strength of the customer base and recurring revenue? What are the sales channels? Is it uber dependent on me as the founder being the face of the franchise, if you will, and if so, how do I combat that? If this business is going to be sold to another owner's hands? These are all things. So in a very, very light way, as you look to evaluate a business, you know, you can parallel some of the things that a lending facility does to gain confidence on their loan, sent out or not.

Yeah, that's good. Good answer, that one. All right, one from the crowd. From a buyer's perspective, are you saying that I should ask the seller if the business has the ability to qualify for an SBA loan? If the answer is yes, and I have great credit assets, I can only go out of pocket 10% for the purchase. First question. Yeah, I mean, it's your responsibility as the buyer to secure the loan, and it's also your responsibility to understand if it qualifies. But you can ask the questions that you need answered for the bank to see if it qualifies, but I wouldn't recommend relying on a seller entirely for the correct answers. Don't expect sellers to be SBA loan experts, because you're also going to want to work with your bank to secure the loan. So you want to have a relationship with them, typically in advance. And once you find a business you want to buy, ask the sellers the appropriate questions, relay that to your bank, and you can see if they qualify. And then for the initial down payment, it's typically 10 to 20% with the bank. You can go higher than that, but you typically can't go go lower than that. So I hope that answers that question. Here's another good one. Can I use an SBA loan to purchase a business that's experiencing some troubles financially or declining revenue? If I have a solid plan in place? Yeah, you definitely can with this. You just need a strong turnaround plan in place to present to the bank to have them approve the loan. It's going to be harder to secure an SBA loan with a business that's going through a rough spot, depending on the length of time of that rough spot or declining revenue. But you absolutely can, you can talk with the bank about maybe how you're qualified to turn this business around or present a really good plan to secure the loan. So it is possible. It'll just be a little bit more challenging.

Yeah. And one, one thing to add to that, Andrew, is when the banks are looking at P and L, when the lender are looking at P and L, they are looking at a P and L that has identified add backs. Of course, they have to be the very standard add backs. It can't be anything too liberal. But they're looking at this because they're trying to assess really what are the gross profits, what is the, the earnings that can be injected back in the business and how would it be distributed? So they do often ask for owner salary to be identified and items like that as they're making their assessment.

Yeah, great points. All right, let's.

See a question here, if you don't mind.

Yeah, grab it.

How are interest rates determined from Elias? So from my understanding the, the interest rates themselves, there's a cap in terms of the interest rates that is set by the sba. But then the banks can charge somewhere in between that cap so they can't exceed it. And so that's the form of regulation is like, hey, this is the most you could actually charge. But depending on who you're lending to, you can decide within that range of what these rates are. And it usually is a factor of the prime rate, which can change with the economy and the, you know, the state of the times.

This is a good resource. Someone in the audience posted this SBA lenders.com I'm checking out right now. Yeah, so you can go by state, you can look at which banks are most known as best SP lenders in Nevada. This is pretty cool.

This is cool.

Yeah. Let me share my screen really quick. I'll just show it. Thank you. Arshad who shared this. I've seen this resource before. I'll just quickly share it. So you can just check this out. Click your State and they get a number of banks that you can reach out to start having conversations, understand their qualifications, what they look to loan against. One thing to note too, when working with banks, we have a few preferred banks that we work at at Acquire and the, the amount that certain banks loan is, is going to be different. Some banks really like businesses that have a million plus in ebitda are, you know, generally in a specific industry, they don't like to go lower. There's more qualifications like that. But understanding, you know, what banks are best for which size and which types of businesses is huge. Like Live Oak bank is a great bank for online acquisitions, but the size is a preference for them. So they typically will only issue a million dollar loan or more so below that they're not even going to be interested in what's, what am I looking for SBA loan for an acquisition if it doesn't meet those thresholds. So this is a great resource, at least start those, those initial conversations. Okay, I'm going to grab. Okay, here we go. If I qualify for an SBA loan, how do I know how much I can borrow to buy a business? This one's free, straightforward. Typically SBA loans for business acquisitions, they're capped at 5 million. So that's quite a bit. If you need more than that, you'll need to look at different options. But the SBA 7A is up to 5 million. I think we do. You see any other questions you want to get to, Kai? I'm getting to the end of the list that, that I pulled out. I have two more. Hold on.

Okay, okay, okay.

As a seller, how does an SBA loan benefit me When a buyer uses one to purchase my business? You want to take that one, Kai?

Yeah. So how does the SBA loan benefit the seller with, with this, despite selling some of the stigma that perhaps I'm creating around SBA being a very difficult process, a very long and dragged out process. The reason it's that way is because they have a really high success rate on that. If you can't achieve this loan, there's, there's not a lot of, I would say risk in accepting it. Right. So you are coming back to that diagram we talked about at the start of this is your deal structure now has a cash on close component that's pretty locked in once you get it there. So there's a lot of benefit to an SBA loan if you can get it there. And it's just a matter of making sure that you're working with someone who's thorough you're working with someone who's experienced and communicative because the angst on the other side of having no one communicate over a 60 day diligence period is somewhat frightening to the state. And the end result of your deal.

Completely agree. Here's a good question. Is it typical to use SBA loans to acquire SaaS businesses? I know you mentioned banks. Consider revenue size, years of stability, etc. Some of the business I see are fairly young. It's not typical on every transaction for the reasons that you mentioned. Number one is durability. So how long has it been in business SaaS businesses? Some are two years old, one years old. So to get to year three, you know, it's kind of like dog years in startup land. So it's going to be an older business. So when we do see SBA pre approval, we're going to see a lot of buyers. So when we work with startups on acquire.com if we feel that it will pre qualify for an SBA loan, we'll go ahead and get that letter from a potential bank. So we at least indicate that buyers from a high level, this business will most likely qualify for an SBA loan. Go as we expand the buyer pool by doing so. But, but good question. You know, we're seeing it more and more and more and we're trying to bring more and more education to the market as well because it's a, it's a great tool when businesses do qualify. Kai, anything you want to add to that? I got one last question after this.

Yeah. Just to, to double confirm the SBA itself, they, they won't land on something that's younger than three years. So for any business that's on acquire or any marketplace and you see that it's less than three years old, not in the U.S. you can automatically stop your pursuits of an SBA and that's not to deter you, but it's just to save your time. You really want to go through these early checkboxes to know is this something that I could even have a conversation about? Because that is really the gateway to progressing further or not. If that's your only means of funding. Yeah.

100. All right, maybe last question. Kai, what do you think?

Sure. Yeah. Let's take this last one here.

All right. Are there specific industries or business types where SBA loans are more commonly used or where they might be more difficult to obtain? Definitely. So SBA loans are def. They're typically used for Main street businesses. So think industries like retail, food services, franchise. We do see a lot with online businesses, but that's generally what they're made for and where they're typically used. And then businesses that won't apply are what they call speculative industries. So think, you know, gambling, investment, holding companies, I don't know, fireworks. I don't know if fireworks would apply, but when I think of that, when I think of gambling, I think of fireworks too. But industries where it's going to be a little riskier than I think a fireworks store would actually apply. So disregard that. But definitely gambling. Any sort of speculative investment companies.

Yeah, yeah. You know, from my experience here with sba, it's, it's something that's still developing, honestly, especially with the, the prevalence of SaaS businesses. It's becoming more and more common. But even then there's still quite a bit of work that goes on from pre approval all the way to close to where you're not only convincing the buyer to buy the business, but you're now convincing the lender to understand the business. So having a memorandum, an offer memorandum, is really important. Answering all the questions very succinctly and correctly is important and making sure that there's no assumptions because we know as people in the SaaS world that SaaS businesses are very successful, are very competent in succeeding if run right. But sometimes it's a matter of teaching or educating the lenders on what we are so familiar with that they may.

Not be completely agree. Well, everyone, it's been a lot of fun doing this. I think we'll have to do probably a part two of just financing and SBA acquisitions. But if you're interested in potentially selling your business with us, definitely check us out@acquire.com we can help you get the maximum price and best terms for your business. We have a full team that would be. Be happy to speak with you again. Thanks everybody for attending. We'll have the recording for this up probably within a few days and definitely stay tuned for the next one. Thanks again for coming.

Thanks for being here.

To purchase my business. You want to take that one, Kai?

Yeah. So how does the SB loan benefit the seller with. With this, despite some of the stigma that perhaps I'm creating around SBA being a very difficult process, a very long and dragged out process. The reason it's that way is because they have a really high success rate on that. If you can achieve this loan, there's, there's not a lot of, I would say, risk in accepting it. Right. So you are coming back to that diagram we talked about at the start of this is your deal Structure now has a cash on close component that's pretty locked in once you get it there. So there's a lot of benefit to an SBA loan if you can get it there. And it's just a matter of making sure that you're working with someone who's thorough, you're working with someone who's experienced and communicative because the, the angst on the other side of having no one communicate over a 60 day diligence period is somewhat frightening to the state, the state and the end result of your deal.

Completely agree. Here's a good question. Is it typical to use SBA loans to acquire SaaS businesses? I know you mentioned banks, consider revenue size, years of stability, etc. Some of the business I see are fairly young. It's not typical on every transaction for the reasons that you mentioned. Number one is durability. So how long has it been in business SaaS businesses? Some are two years old, one years old. So to get to year three know it's kind of like dog years in startup land. So it's going to be an older business. So when we do see SBA preapproval, we're going to see a lot of buyers. So when we work with startups on acquire.com if we feel that it will pre qualify for an SBA loan, we'll go ahead and get that letter from a potential bank. So we at least indicate that buyers from a high level, this business will most likely qualify for an SBA loan because we expand the buyer pool by doing so. But, but good question. You know, we're seeing it more and more and more and we're trying to bring more and more education to the market as well because it's a, it's a great tool when businesses do qualify. Kai, anything you want to add to that? I got one last question after this.

Yeah. Just to, to double confirm the SBA itself, they, they won't land on something that's younger than three years. So for any business that's on acquire, any marketplace and you see that it's less than three years old, not in the U.S. you can automatically stop your pursuits of an SBA. And, and that's not to deter you, but it's just to save your time. You really want to go through these early check boxes to know is this something that I could even have a conversation about? Because that is really the gateway to progressing further or not. If that's your only means of funding.

Yeah, 100%. All right, maybe. Last question. Kai, what do you think?

Sure. Yeah, let's take this last one here.

All right Are there specific industries or business types where SBA loans are more commonly used or where they might be more difficult to obtain? Definitely. So SBA loans are def. They're typically used for Main street businesses so think industries like retail, food services, franchise we do see a lot with online businesses but that's generally what they're made for and where they're typically used and then businesses that won't apply are what they call speculative industries so think, you know, gambling, investment, holding companies I don't know fireworks. I don't know if fireworks would apply but when I think of that I think gambling I think of fireworks too but industries where it's going to be a little riskier than I think a fireworks store would actually apply so disregard that but definitely gambling Any sort of speculative investment companies.

Yeah yeah. You know from my experience here with sba it's, it's something that's still developing honestly especially with the prevalence of.