SBA Incentives in 2021   

2021 has been a wild ride so far…and it’s only February! One bright spot for many business owners is the second round of stimulus incentives designed to help small businesses remain the backbone of the economy. In this newsletter edition, we’re taking a deeper dive into the incentives provided by the Small Business Administration (SBA) that will specifically help with getting buy/sell transactions done.

There is a pot of money available through the CARES act that will expire on 9/30/2021 OR when the money runs out (so don’t wait too long to apply). Two main features that will benefit buyers and sellers:

• All loan fees are waived (usually anywhere from 2 – 3.5% of the loan amount)
• The first six months of payments are made for you by the SBA up to $9,000/month. This isn’t a deferral; it actually reduces principal as the payments are made on your behalf.

Here is how it works:

Let’s say that a buyer is buying a business where they plan to put $50,000 down on the business, the seller will carry back $50,000 on a seller note (on full standby, meaning that the seller can’t collect any principal or interest payments until the SBA note is paid in full), and they will finance $1 million with the SBA. The SBA guaranty fee of $26,250 is waived and the first $9,000 of the $11,102/month payment is made by the SBA on behalf of the borrower for the first six months. This results in $80,250 of SAVINGS for the borrower in the first year. WOW!

You’ll also notice above that the SBA Guaranty has been raised from 75% to 90%. This benefits buyer and sellers indirectly because in the case of default, the financial institution will be reimbursed by the SBA for a much higher percent of the loan. This reduces risk for the financial institution and allows them to approve more loans.

While we’re talking about lenders, we have several national SBA lenders who are eager to look at deals. We’ve found them to be creative and fair.

So while there is plenty of uncertainty out there, it’s a good time to be thinking about how you can leverage these SBA incentives to make buying or selling a business more attractive. Contact us for a confidential conversation about your situation.

P.S.: We’re also getting questions about buy/sell transactions where the seller has taken advantage of Paycheck Protection Program (PPP) funds or Economic Injury Disaster Loans (EIDL) funds. If you find yourself in either situation, please reach out to us to talk about how those programs will be handled in the case of a sale.