While there are strong signals that the small business merger & acquisition market is heating up in 2011, most entrepreneurs are still being challenged when it comes to obtaining capital to fund the acquisition. The financial market meltdown and slow economy over the last three years has caused most of the traditional lenders to restrict the availability of credit as a result of their stricter and higher collateralized lending policies. Despite these issues, there still remains a number of reliable financing options for small business transactions, the largest of which is SBA backed loans.
The United States 'Small Business Administration', is a government agency that provides loan guarantees geared towards stimulating the expansion of business as well as funding for business transactions. It is important to recognize that the SBA is not an actual lender but is the guarantor for the loan to the bank or non-bank that participates in their programs. Each SBA lender will have their own unique terms and conditions and lending criteria so it is advised that individual seeking financing either work with a financing expert or be prepared to show the loan request to multiple institutions.
There are several types of Small Business Administration lenders and the difference is typically based upon the volume of SBA loans that the lender produces each year. The main difference between a GP or General Program lender and a PLP or Preferred Lender Program is the time that it takes to process the loan and the authority given to the individual lender to approve the loan.
For business transactions the most common and flexible program offered by the SBA is its flagship 7 (a) Loan program. These loans can be used for a variety of business purposes including business acquisitions and start-ups. The 7 (a) loan provides funding up to a maximum of $ 5 million and terms up to ten years without real estate and twenty five years for transactions involving real property.
The eligibility requirements, fees, and guidelines for SBA loans change frequently so it is important to consult with a lending professional to obtain the latest information. In addition to SBA backed loans, there are a number of private capital funding options available. Entrepreneurs or business owners who are open to creative financing solutions should consult with an experienced business broker or financing professional as each of these options could vary importantly and involve a number of distinct disadvantages and advantages.