Thread by @SBA_Matthias

Business acquisitions financed through SBA loans have very specific requirements that need to be followed. In this thread, I will dive into a few such requirements🧵 👇

#sba #smb #acquisitions #entrepreneurs #independentsponsors

1 - Complete Change of Ownership:

➡️ As the SBA's guidelines currently stand, if you are buying a business as an external buyer (someone that doesn't currently own equity in one), you are required to completely buyout the seller(s). No exceptions.

2 - Consulting Period for the Seller(s):

➡️ SBA guidelines currently enable a seller to stay on for up to 12 months following the date of the closing of a business acquisition. The terms of the consulting arrangement must be approved by your lender & lender's legal counsel.

3 - Equity Injection Requirement:

➡️ See below thread 👇

https://twitter.com/SBA_Matthias/status/1607479612207939585?s=20&t=0r3ebLPrk-v2FT4tiyJxPA

➡️ Every business acquisition needs to have at least 10% for the equity injection which consist of all cash, or cash & full standby seller financing.

4 - Documentation Needed for an Asset Purchase:

➡️ Asset Purchase Agreement
➡️ Bill of Sale
➡️ Consulting Agreement(s) - when applicable
➡️ Seller Note(s) - when applicable
➡️ Other M&A documents as deemed necessary by buyer & seller's attorneys

5 - Documentation Needed for a Stock Purchase:

➡️ Stock Purchase Agreement
➡️ Copies of Stock Certificate(s)
➡️ Consulting Agreement(s) - when applicable
➡️ Seller Note(s) - when applicable
➡️ Other M&A documents are deemed necessary by buyer & seller's attorneys

6 - Letter of Intent:

➡️ This is the first document typically in an M&A transaction that establishes the price, seller note terms (when applicable), what is included in the sale, whether the deal is an Asset or Stock Purchase, the closing date, & other items

7 - Business Valuation (Bank Orders)

➡️ As part of the underwriting (or closing) process, the SBA lender bank will order a 3rd party business valuation.

➡️ The SBA loan amount cannot exceed the value, as determined, in the business valuation.

8 - Seller Items Your Bank May Need

➡️ Some banks require the seller to sign a statement on why they are selling the business

➡️ Most banks require the seller to sign an affidavit, certifying that the financials provided for underwriting are true & accurate

9 - Seller Items Your Bank May Need

➡️ All banks require either an IRS Form 8821 or IRS Form 4506C / 4506T to be signed by the authorized signer of the seller to obtain tax transcripts for the seller's business

10 - Closing Thoughts

➡️ I hope that you found this thread to be useful & informative. Please feel welcome to comment, RT, or DM me with any questions

➡️ I post about all things related to SBA financing & business acquisitions.

➡️ Feel welcome to follow @PIONEERCAPADV