SBA Rule Changes Make Exit Possible for More Owners

SBA Rule Changes Make Exit Possible for More Owners

  • April 6, 2010

Owners of closely-held businesses face many potential challenges to successfully exiting their business and transitioning it to a new owner.  One common hurdle that they must overcome is finding a buyer capable of securing adequate acquisition financing for a business where much of the value is in the "goodwill" of the company.  Recent changes to the Small Business Administration's 7(A) loan program should help to alleviate this problem for many owners. 

  "Under new rules, any amount of goodwill (up to the overall lending limit of $2 million) may be financed so long as there is at least 25 percent equity provided in any combination of borrower down payment and seller stand-by financing.  In addition, the SBA has temporarily increased its guarantee from 75 percent to 90 percent of the loan amount and has waived the guarantee fee charged to borrowers.  In a nutshell, the new rules make acquisition financing easier for borrowers, provide clarity and additional security for lenders, and significantly increase the availability of SBA financing at a time when it is needed more than ever."

There are many other factors that must be in place in order for a business owner to successfully complete their exit, but those who have taken the time to plan their exit will be well situated to take advantage of these favorable changes.