SBA (7a) Loan – FAQs

two businessmen sit at a desk with charts and graphs laid out in front of them

Many of our clients have asked the following questions:

What are the borrower criteria to obtain an SBA loan?

The buyer must have three things in order to obtain the SBA loan:

  • Strong resume
  • Required funds in his own name
  • Excellent credit

What is the required down-payment for an SBA loan?

The buyer must have a minimum cash injection of ten percent (10%) of the total project costs.  A Seller carry-back note can be credited up to a maximum of fifty percent (50%) of the Buyer’s cash injection requirement.

Will the borrower be required to pledge his residence as collateral for the SBA loan?

If the borrower has more than 25% equity in his personal residence or rental properties, it must be pledged as collateral.

Are stock and bond portfolios required to be pledged as collateral?

No, stock and bond portfolios are not required to be pledged by the SBA.  However, individual lenders may require this.

When can the Seller begin receiving payments on a seller carry-back loan?

The seller’s carry-back note must be on standby for the entire term of the loan.  Interest can accrue but cannot be paid to the Seller while the SBA loan is in place.

How long can the Seller be employed by the Buyer post-closing?

The Seller can work for the Buyer as a consultant for a period not to exceed 12 months.

When is a business valuation required?

If the purchase price of the business is more than $250K, a third-party valuation must be performed.

Does the valuation have to exceed the sales price of the business?

No, the valuation must exceed the loan amount.

Is a minority partner required to personally guarantee the loan?

If the minority partner has less than 20% ownership and has no operational responsibilities, no loan guarantee is required.