The U.S. Small Business Administration (SBA) was originally founded in 1953
as an independent agency of the federal government to Aid, counsel,
assist and protect the interests of small business concerns, to preserve
free competitive enterprise and to maintain and strengthen the overall
economy of the United States.

Although the SBA has grown and evolved in the years since it was established
in 1953, its bottom line mission remains the same. The purpose of the
SBA is to help Americans start, build and grow businesses.

Through an extensive network of field offices and partnerships with public and
private organizations, the SBA delivers its services to people throughout
the United States, Puerto Rico, the U. S. Virgin Islands and Guam.

The SBA is an independent agency within the federal government that operates
under the authority of the Small Business Act of 1953.

The SBA can makes loans directly to businesses and acts as a
on bank loans. In some circumstances it also makes loans to victims
of natural disasters, works to get government contracts for small businesses,
and assists businesses with management, technical and training programs,
some of which can be done on-line.

The SBA has directly or indirectly helped nearly 20 million businesses and
currently holds a portfolio of roughly 219,000 loans worth more than
$45 billion making it the largest single financial backer of businesses
in the United States.

The SBA has survived a number of threats to its existence. In 1996,
the then newly Republican-controlled House of Representatives planned to eliminate the agency.
It survived and went on to receive a record high budget in 2000.

Renewed efforts by the Bush Administration to end the SBA loan program have
met congressional resistance, although the SBA’s budget has been repeatedly
cut, and in 2004 certain expenditures were frozen.

SBA Loan Programs

The most visible elements of the administration are the loan programs it administers. The SBA itself does not grant loans. Instead, the SBA guarantees against default certain portions of business loans made by banks and other lenders that conform to its guidelines.

Contrary to popular belief, these programs are not generally for persons with
bad credit who can not get bank loans, nor are they primarily used for
startup funding. The primary use of SBA programs are to make loans
for longer repayment periods and with looser affordability requirements
than normal commercial business loans.

Also, a business can qualify for the loan even if the yearly payment would
be Read More »

Attempts to buy a business opportunity will be viewed by most commercial borrowers as complex and confusing when seeking to arrange the working capital business loan. This is usually especially difficult if there is no commercial real estate as collateral for buying a business opportunity. Commercial borrowers should anticipate that business financing choices will be substantially different in comparison to a business acquisition that can be financed with a commercial real estate loan when buying a business opportunity that does not involve commercial property.

The comments and suggestions in this report reflect business financing conditions that are frequently offered by substantial lenders willing to provide a business loan to buy a business opportunity throughout most of the United States. There are likely to be circumstances in which a seller will privately fund the acquisition of a business opportunity, and it is not our intent to address those business loan possibilities in this report.

Length of Business Loan to Expect When Buying a Business Opportunity

Business financing conditions to buy a business opportunity will frequently involve a reduced amortization period compared to commercial mortgage financing. A maximum term of ten years is typical, and the business loan is likely to require a commercial lease equal to the length of the loan.

Expected Interest Rate Costs for Buying a Business Opportunity

The likely range to buy a business opportunity is 11 to 12 percent in the present commercial loan interest rate circumstances. This is a reasonable level for business opportunity borrowing since it is not unusual for a commercial real estate loan to be in the 10-11 percent area. Because of the lack of commercial property for lender collateral in a small business opportunity transaction, the cost of a business loan to acquire a business is routinely higher than the cost of a commercial property loan.

Down Payment Requirements for Buying a Business Opportunity

Depending on the specific type of business and some other issues, a normal down payment for a business loan to buy a business is 20 to 25 percent. Some seller financing (such as 10 percent) is usually helpful and in some cases might reduce the down payment required from the buyer to buy a business.

Buying a Business Opportunity – Refinancing Options

A related business loan issue to anticipate when buying a business is that refinancing the business opportunity loan terms will normally be even more difficult than the original business financing. There are currently some new business loan programs in the final stages of development that could dramatically improve future refinancing options. But until these new business financing options are finalized, it is important to arrange the best Read More »