The SBA 7(a) program is a versatile loan platform offered by the Small Business Administration (SBA) to support small businesses in various financial endeavors, including business acquisitions. This initiative provides several benefits, such as reduced down payments, extended repayment periods, and flexibility in loan terms, making it an attractive option for entrepreneurs looking to acquire businesses.
Late 2023 shifts in the SBA lending landscape are exciting and will further shape acquisition strategies into 2024. Changes in policies and lending criteria mean businesses and buyers must stay well-informed to navigate these waters successfully.Â
In this blog post, we will outline the key changes, helping you navigate the new rules and take advantage of the updated guidelines.
SBA 7(a) Enhanced Loan Qualifications:
The SBA 7a loan program now offers greater flexibility for larger projects. For loans exceeding $5 million that include commercial real estate, a combination of SBA 7a and 504 loans can be utilized, providing access to additional funding.
SBA 7(a) Amplified Amortizations:
Loans allocated more than 51% to real estate can now benefit from an extended 25-year amortization. In cases where real estate comprises less than 51% of the purchase price, a blended amortization approach remains.
SBA 7(a) Revised Equity Injection Requirements:
For full divestitures, the equity injection can now be a mix of non-borrowed cash from the buyer and various forms of seller-subordinated notes, offering flexibility in seller-financing beyond long-term full standby notes, which are rightly viewed as unattractive by sellers.Â
In partial buyouts, a new and innovative change allowed as of 2023 for the first time, a significant change is that sellers who retain less than 20% ownership post-closing are not required to be guarantors. Moreover, no equity injection is required under certain conditions, such as if a buyer is acquiring 90% or less of a business. Another key update is that sellers are allowed to stay on as employees indefinitely, providing continuity and stability post-acquisition.
These changes reflect the SBA's efforts to make acquisition financing more accessible and flexible for small businesses, providing opportunities for entrepreneurs to pursue business acquisitions with reduced financial barriers. Calder remains excited about the potential for these changes to positively impact the 2024 M&A markets.Â
Staying informed and adaptable to these changes is key for entrepreneurs seeking growth. As always, it is recommended to consult with your lender and take advantage of professional advice to navigate the intricacies of these new regulations successfully.
About Calder Capital
Founded in 2013, Calder Capital, LLC is a lower middle market investment bank providing mergers and acquisitions advisory services to business owners, entrepreneurs, family offices, and investors across the United States. Our dedicated team of professionals combines extensive industry experience, technological innovation, negotiation savvy, and key relationships to exhibit exceptional execution. Calder’s services include mergers and acquisitions advisory, private funds and capital markets advisory, and business valuations.