Whether acquiring an existing business or buying out partners from your current one, a Small Business Administration (SBA) 7(a) loan could be an excellent option, offering competitive interest rates and longer repayment terms to qualifying buyers.
However, while the SBA guarantees a significant portion of the loan, collateral is usually required of the borrower. Here are five important facts to know about how the SBA views collateral in a business acquisition transaction:
- SBA discounts collateral heavily, so the value of provided assets are often less than expected.
- It is possible to complete an SBA loan even if there isn’t enough available collateral – but the SBA requires the lender to count everything available.
- Hiding real estate collateral in a trust simply won’t work…every potential source is investigated.
- Life insurance assignments are taken, but not counted, in the collateral value.
- The SBA guarantee itself isn’t considered collateral.
Is a business acquisition in your future? As a Top 10 Preferred SBA Lender, First Internet Bank can help make the process faster and easier. Have questions? Talk to one of our Business Development Officers today.
