Chris Hurn on Using SBA Loans to Buy an Existing Business

Interested in starting a small business? Then you don’t always have to start from scratch. Instead, you may want to buy a business that is currently for sale. Fortunately, there will be more opportunities to buy them in the future.

For example, there are many entrepreneurs in the older age who want to retire and earn money. On the other hand, you have entrepreneurs rattling about inflation and recession who are expected to put their business up for sale.

That’s great if you’re considering starting a new business. However, it begs the question: how do you get the money to buy one?

This video answers this question and lets business owners know where to get a loan to buy a business.

An excellent option, Chris Hurn, founder/CEO of Fountainhead Commercial Capital, tells us, is a loan backed by the US Small Business Administration.

In this latest episode of SmallBiz in:15, Chris Hurn sits down with Shawn Hessinger, the executive editor for Small Business Trends, to discuss this topic in depth.

Other key points Chris Hurn discusses in the video are the steps small business owners can take once they find a company they want to acquire and finance through the Small Business Administration. His admissions include the requirements you must meet and the documents you must prepare to be eligible.

If you are interested in buying a business, don’t miss using SBA loans to buy a business.

Meanwhile, you can talk to Chris Hurn at https://www.fountainheadcc.com/ if you need more information after watching this episode.

Can I Get an SBA Loan to buy a business?

Can You Get an SBA Loan to Buy an Existing Business? Turns out, according to Fountainhead Commercial Capital founder Chris Hurn, you can read on to see the interview excerpts from his Small Business Trends interview and find out how.

Shawn: What are the benefits of using an SBA backed loan to acquire a business?

Chris: Typically, small business borrowers use SBA loan programs because the down payment or capital injection is often half to a third of what a regular conventional bank loan would require. So that’s a huge benefit, especially coming out of the pandemic when people realize how precious their capital is.

“The second big reason people like SBA loans is because they usually have much longer repayment terms compared to regular, conventional banks.

So it’s not uncommon to have a 25-year write-off, say on a commercial real estate transaction with an SBA loan, while most banks will probably look more like a 15 or 20-year write-off – frankly, they probably have a balloon payment after 5, 7, 10 years where you don’t have that in the SBA world.

Those are probably the two biggest benefits,” says Chris. You also have the option to use the loan proceeds in a much broader way than what is often available for a business loan from a conventional lender.

What I mean by that in particular is that an SBA 7A loan can be used not only for the purchase, refinancing, renovation and construction of other commercial real estate, but also for business acquisition loans…which are nearly impossible to get. be from an ordinary conventional bank or non-SBA.

We also use SBA 7A proceeds for partner squeeze-out loans; we use them for working capital purposes, a lot of franchise financing is done with SBA 7A loans, lease/hold improvements, renovations are done with 7As, equipment financing – we do a lot of corporate debt refinancing with 7As. So it’s just a very versatile loan product and is generally much, much more flexible and versatile than regular, conventional sofas.

Those are the big reasons why people like to use SBA loans.”

Shawn: What exactly is an SBA bank loan and how is it different from other types of loans?

Chris: Essentially, the SBA has been around since the early 1950s. In fact, I think it will be celebrating its 69th anniversary in July. And it is the only department of the federal government that focuses on entrepreneurship; the growth of small businesses in America. This is a big deal, since almost half of the employment in America is done through these companies

“So in terms of what SBA is supposed to do… the SBA is not a lender… and I get this question a lot, people don’t necessarily realize this, they just assume SBA is the one who is financing all these loans. They are not.

The SBA is actually meant to be a safety net for private sector lenders, they basically provide effective insurance… it’s what’s called a government guarantee.

So for a typical SBA 7A loan, which we are talking about, we have a federal government guarantee of 75% to 85% of the loan amount, depending on the size of the loan and whatnot.

The reason it exists is that it is intended to incentivize lenders like us to give more favorable terms. For example, to provide a loan that may be on the margin that we would not necessarily want to provide conventionally.

I am not suggesting that we make bad loans; the SBA is certainly not trying to encourage lenders to make bad credit decisions. But they do want to give lenders a boost if something is a bit in the gray area.

And frankly, if we can do longer installments, it helps the business owner to lower their monthly out rates and keep their cash flow as positive as possible when they have a longer term to pay it back. The same goes for a much lower deposit.”

Why It’s Never Been a Better Time to Use an SBA Loan to Buy a Business

Shawn: Speaking of which, the use of SBA loan backs for acquisitions, what’s the specific relevance to this topic?

Chris: When we talk about corporate acquisitions, as opposed to just commercial real estate acquisitions, the reason it’s much more of a relevant topic today is that there are a huge number of business owners who are retiring and reaching retirement age.

“You know, there was a statistic I saw about a year ago that 56% of all small to medium-sized businesses in America are owned by baby boomers. It’s no secret that some 9,000 baby boomers will retire every day for the next nine years.

So there will be a boom in business acquisition opportunities because most business owners don’t want to just close the business and get nothing for it. They would much rather sell the company if that is an option.

And, frankly, most of these people don’t really want to hold the paper and don’t want to do seller financing. They’d rather have someone come in and pay them in cash or, you know, someone who gets financing… who actually pays cash through financing.

So that’s something you’ll be seeing a lot more of in the future. Times like what we just went through with the pandemic, I think that accelerated some people’s desire to maybe leave a little faster. The same with now going through an inflationary period. I think you will see that more and more sellers want to go further.”

Shawn: You mentioned inflation. And I wondered if inflation, coupled with the concerns we’re hearing in the press right now about a potential recession, could also increase people’s interest in making some money to get the most out of their business and move on. to go.

Chris: That’s exactly what I meant there. It certainly happens more in times like these. Also, the downside that we talked about a few minutes ago, why some banks don’t want to or many conventional banks don’t like to participate in some of these, is partly because of the macroeconomic environment we’re in.

“Obviously, if inflation has risen, like it has in the past year or so, that raises some doubts on the part of a lender about that borrower’s ability to repay. You know, because their costs are going up across the board, whether it’s labor costs or inventory costs or, you know, just any number of different things, shipping costs.

And then, of course, to curb inflation is often one of the best tools or the Fed is to raise its short-term interest rates, which then trickle down to the economy, which of course causes the various interest rate indices all to rise and resulting in a rise in interest rates. business loan rates and rising consumer loan rates.

And then that sets in motion a whole different set of events of lenders worrying about their borrower’s ability to meet their debt obligations, the repayment because now all their interest costs are also higher.

So this is a bit of a treacherous time, no doubt about it. And that’s partly why you’re now seeing a lot more sellers willing to lend their business.”

The next steps to buy a business through the SBA

Don’t miss the rest of the video, where Chris Hurn discusses the steps small business owners can take once they’ve found a company they want to acquire and fund through the Small Business Administration. This includes the requirements and documents you need to prepare to qualify for this type of business loan.

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