SBA's Streamlined Process Fuels Record Small Business Applications

For entrepreneurs looking to buy a small business, there are several ways to finance a business acquisition. Traditional bank loans, seller financing, and other funding sources offer a range of possibilities for structuring the deal. In many cases, buyers can negotiate a deal using a combination of financing methods to achieve the most favorable terms. One of the most popular financing methods is through the resources provided by the Small Business Administration (SBA), a U.S. government agency that supports small businesses and entrepreneurs. The SBA's 7(a), 504, and Microloan lending programs simplify the process of obtaining funding for small businesses.

Small Business Administration Lending Programs

The SBA supports entrepreneurs by providing a wide range of resources and assistance. Along with providing valuable learning opportunities and local help through SBDCs, their flagship funding programs effectively distribute funds to small business owners. To better understand how the SBA supports small businesses, let's take a closer look at their key lending programs:

1. 7(a) Loans: This program is the SBA's primary business loan program. 7(a) loans can be used for buying businesses, as well as growing the business. This includes loans for acquiring, refinancing, or improving real estate and buildings, short and long-term working capital, refinancing current business debt, buying and installing machinery and equipment, and financing furniture, fixtures, and equipment (FF&E). These loans offer lower down payment requirements and longer repayment terms compared to traditional bank loans.
2. 504 Loans: This program provides long-term, fixed-rate financing to promote business growth and job creation. Long-term, fixed-rate financing means that the interest rate remains the same throughout the life of the loan, providing stability and predictability for business owners. A 504 loan can be used for the purchase or construction of existing buildings or land, new facilities, machinery, as well as improvements to existing facilities. These loans typically have lower down payment requirements compared to conventional commercial real estate loans.
3. Microloans: These loans are smaller in size, up to $50,000, and provided through SBA-funded intermediary lenders. Microloans can be used for a variety of purposes that help small businesses expand, including working capital, inventory, supplies, equipment, and more. These loans are particularly helpful for small businesses that may not qualify for larger financing options.

How the SBA is Streamlining Processes

Behind the scenes, the SBA has been diligently working to streamline processes and procedures, making it easier for aspiring entrepreneurs to start or buy existing businesses. Their efforts have yielded record numbers of applications in recent years. With a monthly average of 440,000 new business applications over the last three years, totaling 17 million applications, the SBA's initiatives are making an impact. The streamlined process includes the following key changes:

1. Streamlined Loan Processes: The SBA has simplified and streamlined the loan origination process, allowing lenders to use their existing credit policies and processes for loans under $500,000. This efficiency helps expedite the loan approval process.
2. Reduced Fees: The SBA has cut the "guaranty fee" for loans under $1 million to 0% and for loans between $1 million and $5 million to 0.55%, providing significant savings for small businesses compared to the previous fees of over 2%.
3. Technology Improvements: Lenders are embracing technology solutions to enhance lending efficiency, especially for larger loans. Automated scoring and reduced documentation requirements are among the changes designed to shorten the time required to secure SBA loans. Small businesses now have better access to capital through the newly launched online Lender Match Platform, which offers an improved interface for easier navigation and enhanced usability.
4. Expanded Licensing and Program Access: By lifting a 40-year moratorium on issuing new Small Business Lending Company (SBLC) licenses, the SBA has opened the door for more lenders to participate in SBA lending. Additionally, eliminating the franchise directory, which previously listed approved franchises, provides greater flexibility in lending to a broader spectrum of businesses.
5. Increased Support for Underserved Communities: The SBA's 7(a) program has expanded its reach to underserved communities, such as Black entrepreneurs and women business owners, ensuring increased access to financing for these groups.

These improvements highlight the SBA’s dedication to supporting small businesses and entrepreneurs. If you’re considering buying a business and need financing, check out the financing options available through the SBA. At Trustmark. we work with several lenders to help you through the process. They provide valuable resources to help you transform your entrepreneurial dreams into a reality.

-Excerpted from BizBuySell