The SBA Drives Another Stake In The Heart Of The Small Business World

The SBA puts another stake in the heart of the small business world – seller-financing is now absolutely necessary if you want to buy or sell a business. This is bad news for sellers and buyers of small businesses. Despite the need for support, the SBA has done it again, making it harder and harder to buy and sell quality small businesses.

Read below to hear another sad story. The net result is that sellers will have to finance the purchase of their business. It’s just one more barrier to small business development, as if we didn’t have enough problems finding financing support, now we have the SBA working against the small business owners? It makes little sense but it is what it is. Seller-financing is now the only answer.

On February 6 the SBA advised lenders that, in cases of business acquisitions, no more than 50% of a 7(a) loan should be used to finance goodwill – the intangible assets of a business that create cash flow. Hard assets, such as real estate or equipment, are not included in goodwill. In no case should goodwill account for more than $250,000 of the loan amount according to the SBA’s guidance. Lenders and business brokers contend this goodwill limit will make it impossible to use SBA loans for many business acquisitions, particularly those of service businesses or professional practices. As a result, it will be harder to buy or sell a business said Matt Ottaway, General Manager for Sunbelt Business Brokers which has 200 offices across the U.S. This could lead to a decline in the value “of every small business that’s out there,” he said.

Many successful businesses have few hard assets, says Scott Gabehart, a certified business appraiser in Phoenix, Arizona. “Why do you want to punish companies that are highly profitable?” Gabehart said. “That’s basically what this boils down to.”

The SBA has received considerable feedback, both pro and con, on its new goodwill limit and will issue further guidance soon, Zarnikow says. The agency had not previously addressed goodwill in its guidance to SBA lenders and felt it needed to do so in order to encourage prudent lending, he added. It also wants to encourage sellers to finance the purchase of their businesses because that gives them a stake in the new owner’s success.

Another nail in the small business coffin. OK, seller-financing it is. Thanks for the support, SBA!