By way of KeyBank.
SBA Business Acquisition Financing - SBA Policy Changes
Effective Oct 1, 2009
Intangibles Policy: - Change of ownership loans that include purchase of intangible assets are allowed.
Intangible Asset Definition: - SBA Now defines “Intangible Assets” as including, but not limited to, goodwill, client/customer lists, patents, copyrights, trademarks and agreements not to compete.
Purchase Price of Intangibles over $500,000: - If purchase price includes intangible assets in excess of $500,000 then, Borrower and/or seller must provide an equity injection of at least 25% of the purchase price of the business.
Purchase Price of Intangible less than $500,000: - If purchase price of business includes less than $500,000 for intangibles, the 25% equity requirement does not apply.
Seller Equity: - Seller Equity = Seller-take back financing that is on full stand-by (no payments of principal or interest) for at least 2 years. Borrower and seller will agree how much equity each will provide Ex: borrower may provide 10%; seller may provide 15% total must equal at least 25%.
Buyer’s Down Payment: - Cash that is borrowed; SBA considers funds borrowed through the use of personal credit for injection (Ex: Home Equity Loans) into the business as additional debt, not equity, with one exception. If the Small Business Applicant can demonstrate repayment of this personal loan from sources other than the cash flow of the business, the cash injection may be considered equity.
Business Valuations: - If the amount being financed (including any 7(a), 504, seller, or other financing minus the appraised value of real estate and/or equipment being financed is $250,000 or less, the lender may perform its own valuation of the business being sold. If the amount being financed minus the appraised value of real estate and/or equipment is greater than $250,000 or if there is a close relationship between the buyer and seller, the lender must obtain an independent business valuation from a qualified source.
Loan Terms: Business acquisitions with no real estate remain at a 10 year term. Real estate acquisitions remain at a 25 year term. Historically, loans that included both business and real estate were blended. Lender’s now have the option of providing a blended maturity or a maturity based on the maximum maturity allowed for the asset comprising the largest portion of the use of loan proceeds. For example, if the majority of loan proceeds are financing real estate, a maximum term of 25 years is allowed. Verify with the lender what method will be used to determine the maturity.
Collateral: SBA no longer allows lenders to provide a value to accounts receivable and inventory when determining collateral coverage, even if those assets are required as collateral on term loans.