Should you buy a business with an SBA loan?
It's not easy finding the right opportunity, and it can be even harder getting approved for financing.
Here's the short answer.
If you're going to buy a business with an SBA loan generally speaking, as long as your business purchases is at a number where the total amount of money you need to borrow from the bank is less than three times the net earnings then you can and should use the SBA loan for the purchase.
Let's paint a picture.
If the potential business you wanted to purchase made $600,000 a year, and the amount of money that you borrowed to buy the business was $1.2 million. It makes it very easy math equation for your lender.
They can see your business will make, let's say $50,000 a month in profit, and if your bank loan comes to about $14,000 that leaves margin for reinvesting in the business for positive cash flow and pay the bank back.
Why You Should Buy a Business With an SBA Loan, Not Build one.
Starting a business poses a significant risk. 1 one out of 400 businesses will ever make a million dollars in revenue. The odds of staying in business much less generating a profit are stacked against you. This is why The SBA loan should be used for businesses that are already generating revenue, not a business that is starting from scratch. Because if you are starting from scratch, you don't know if will have the ability to generate revenue to pay the loan back.
But in applying for an SBA loan, you have to also consider securing financing that benefits you and also satisfies the bank.
Misconceptions Surrounding SBA Loan Financing.
Be aware not all SBA lenders are created equal. You need to do your research based on your specific needs and find out the best SBA lenders for your purchase.
You also don't need a lot of cash or collateral to qualify for an SBA loan. In fact, it specifically says that a lender should not decline a loan solely on the basis of lack of collateral if it has cash flow or managerial experience.
If you're interested in learning even more about finding the best SBA loan for you, head over to Accelerator.com, where you can learn how entrepreneur Joshua Kim turned his SBA loan-bought business into a multi-million dollar company.
Are you interested in knowing how to set up a revenue producing marketing system for your SBA loan business? Check out the Golden Toilet Below. This book will teach you how to implement an effective marketing system that will grow your business.