One of the most daunting aspects of striking out on your own is the inherent financial insecurity. You are exchanging constraint and stability for freedom and risk. Hesitance is normal, but it should not stop you from chasing your independence, especially when there are government agencies designed to help. One of these is the government-backed U.S. Small Business Administration (SBA). The SBA’s business financing programs “[provide] small business with an array of financing…from the smallest needs in microlending – to substantial debt and equity investment capital.” The most common SBA small business loan allotment is about $130,000-140,000. Yet they range from just $5,000 to $5,000,000.
Now I am sure you have several questions about buying a business with an SBA loan. Sure, financing is readily available, but how do you go about getting an SBA loan if you are in the process of buying a small business? Do you qualify? And if you do, should you accept SBA financing? To address these questions, consider the following five steps.
- Get Pre-qualified: When preparing to buy anything, let alone a business, you need to know what you can pay. Begin by exploring the SBA website (www.SBA.gov) to familiarize yourself with the different loan types available. Collate the documents listed there (SBA’s “Business Loan Checklist”) into a preliminary loan application packet. Then go to your nearest bank or lending institution that participates in SBA programs and meet with a lending agent. (For location suggestions, email me at email@example.com). You do not need to make any final decisions at this point. This meeting is more about making you aware of your financing options.
- Understand the Deal: Simply put, know what you’re getting yourself into. Before you buy a business or secure SBA financing, educate yourself on the processes involved. You don’t need to know the intricacies of every step, but you should be able to converse intelligently and freely with your lending agent, broker, or private practice transitions expert. As they say, know enough to ask the right questions. Many of you may already be familiar with these processes. Fantastic! If that’s the case, please proceed to step three.
- Be Prepared to Make a Deal: This may seem obvious, but getting into the buyer mind frame is important. Are you really ready to take the plunge or would six months from now be better? Is your family ready? Will you be financing through the SBA? How much down payment can you afford now? Will you be asking the seller to finance part of the deal? Answer these questions, make a decision, and then be prepared to pivot.
- Evaluate and Develop your Strengths: Being your own boss is a big responsibility. It is not beyond you. The best small business owners are honest with themselves. They know what they’re good at and where they need to improve. You can do this, too. Make three lists: one for your business strengths, both concrete and abstract; one for your general, ‘okay’ business skills; and one for those items with which you truly struggle or have no experience at all. Be candid. If you are afraid of the numbers side of running a business, then you need to remedy that now. You will need to understand, and feel comfortable, with the deal you are about to make.
- Trust your Advisors: The President of the United States has advisors and so should you. This doesn’t mean you need an official Board of Advisors – you can have one, but it isn’t necessary depending on the scale of your proposed business. Instead, consider having a collection of confidantes, people you trust who are, frankly older, wiser, and more experienced in this type of venture than yourself. Get their opinions on your business proposal and loan options.