6 Steps to Buying a Business with an SBA Loan

Posted on Tuesday, September 3, 2024 in SBA Loans

6 Steps to Buying a Business with an SBA Loan

If you’re looking to buy an existing business, a Small Business Administration (SBA) loan might be a viable lending option for you to consider. SBA loans are available through First National Bank. They are a government-backed loan that helps businesses get access to the capital they may need.

To qualify for an SBA loan, you’ll need to have a good credit score, adequate collateral, and a solid business plan.

Here are some important steps that you should take to be successful in obtaining an SBA loan.

Step 1: Do your due diligence in finding the Right business. Make sure the price of the business you’re interested in buying is realistic and that the company is a good fit for you. Consider the location of the business in light of issues like foot traffic, street access, and neighborhood crime. Of course, be sure to look carefully into the financial health of the business. Lastly, consider your own financial situation to make sure you have enough money for the down payment and to cover the costs of running the business.

Step 2: Cross your Ts and dot your Is. When purchasing a business, it’s important to work with an experienced business broker who can guide you through the acquisition process, from identifying potential businesses to closing the deal.

Also, you’ll want an attorney who can help review all of the paperwork to ensure that the deal is structured correctly and that you understand all of the contractual obligations that come with the purchase.

Step 3: Speak to a First National Bank SBA lender. Buying a business with an SBA loan is a smart financing option for small business owners. It’s essential to work with experienced professionals to effectively navigate the loan process.

If you’re interested in purchasing a business using an SBA loan, contact a First National Bank SBA loan specialist. They can explain the SBA program’s eligibility guidelines, funding amounts, different SBA loan programs, and how the loan application process works.

They will also cover the steps you can take in advance of submission of your loan application which can increase the likelihood that your loan will be approved, such as ensuring you have a comprehensive business plan.

Step 4: Submit your application. Depending on the particular SBA loan program you are applying for, the information your lender will need can vary. Typically, this includes financial statements, tax returns, business plans including financial projections, and a detailed proposal outlining the purpose of the loan.

It is important to prepare these documents meticulously and ensure they accurately reflect the financial health and viability of the business you intend to acquire. Your lender will outline the specific documents you need based on your financial situation.

After submitting your loan application, the lender will review the documentation and assess your eligibility. They may also request additional information or conduct interviews to gain a deeper understanding of your business and its potential. The loan approval process can take time, so it is important to be patient and responsive to requests from your lender during this stage.

Step 5. Review your loan offer. Once your loan application is approved, you will receive a loan offer from the bank. It’s important to review the terms of the loan offer carefully before accepting it, as you will be responsible for repaying the loan according to these terms.

Step 6. Close on the loan. Once you have accepted the loan offer, the loan closing process will begin. This process involves paying any closing costs not already incorporated into the loan and perfecting the many documents needed to secure the debt and fund your new endeavor.

Common mistakes to avoid when using an SBA loan to buy a business

While SBA loans can be a valuable source of financing, there are common mistakes that entrepreneurs should avoid when using these loans to buy a business. Being aware of these pitfalls can help you navigate the loan process more effectively and maximize the benefits of SBA financing.

One common mistake is not conducting thorough due diligence on the business you intend to acquire. Failing to investigate the business' financial health, market position, and growth potential can lead to unforeseen challenges and financial burdens. Take the time to evaluate the business from all angles, including its operations, customer base, and competition.
Another mistake is underestimating the costs associated with the acquisition. Beyond the purchase price, there may be additional expenses such as legal fees, licensing fees, inventory costs, and working capital requirements. Failing to account for these costs can strain your finances and hinder the growth of your newly acquired business.
Furthermore, it is essential to carefully review and understand the terms and conditions of the SBA loan. Some entrepreneurs make the mistake of focusing solely on the loan amount and interest rate, neglecting other important factors such as collateral requirements and personal guarantees. Understanding the full scope of the loan agreement will help you make informed decisions and avoid unnecessary financial risks.

Conclusion

SBA loans offer a powerful tool for entrepreneurs looking to acquire a business. By leveraging the benefits of SBA loans, business owners can access affordable financing, unlock growth potential, and achieve their entrepreneurial dreams.

If an SBA loan is not the right fit for your business, there may be alternative commercial loan options available through First National Bank. Exploring these alternatives can help you find the financing solution that best aligns with your business goals and objectives.

Are you ready to purchase your new Iowa business? Contact us today to explore the financing options available and unlock the potential of owning your new business.

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