100% SBA Bank Financed Acquisition Loans Is The Norm

100% SBA Bank Financed Acquisition Loans Is The Norm

A 100% bank financed acquisition loan is when all of the purchase price is secured through a bank loan. The borrower doesn’t make a cash down payment and the seller doesn’t finance any portion of the purchase.

100% bank financing started to become a mainstream option in wealth management MA in 2018, when the SBA modified their rules for acquisition loan requirements. The significant rule change replaced the 25% seller financing policy with a 10% equity injection requirement. The SBA provides 3 ways the 10% equity injection requirement can be satisfied: cash, assets other than cash, and allows (not requires) up to 5% to be satisfied with standby seller financing (standby means no payments can be made during the term of the SBA loan).

For independent advisors in the wealth management industry, the “assets other than cash” can be based on the value of the advisor’s business or book. If the borrower’s business value is high enough compared to the business being purchased, then the borrower is able to satisfy the equity injection requirement with assets other than cash.

This provision is ideally suited for wealth management MA. As a general rule, most advisors with $350,000 in recurring revenue would have a business value high enough to satisfy the equity injection rule for the maximum $5 million SBA 7a acquisition loan amount. An advisor with $150,000 recurring revenue can typically get a 100% bank financed deal for up to $2 million.

Since this SBA rule change, we saw a steady decline in the portion of acquisition loans with a seller financing component in 2018. Continue reading “100% SBA Bank Financed Acquisition Loans Is The Norm”