Time is running out for buyers to take advantage of the amazing incentives that the SBA is offering to buyers for qualified business acquisitions under their 7a loan program. The SBA is paying 3 months of payments for buyers (that’s three months payment-free for buyers), as well as removing fees to incentivize buyers, and they are also increasing their guarantees to banks, which will de-risk loans for the lenders. There couldn’t be a more perfect time than right now to buy a business. The clock is ticking, so what are you waiting for? These perks are only good on loans that close before the end of September 2021, so it’s time to get shopping. Here’s what buyers need to know about the new SBA loan incentives.
If you are shopping for a business in 2021, make sure to get under contract as soon as possible, and set your closing date well in advance of the end of September. Last September when the SBA offered this in 2020, they were so backed up with loan applications that many buyers who waited too long unfortunately didn’t close before the deadline and they missed out on the free payments. Our advice would be to get it closed as soon as possible, to ensure that you get to take advantage of this incredible opportunity. Lenders are taking 60-90 days right now to close these loans, and as more and more buyers want to get in before the deadline, that is only going to take longer. We suggest that buyers get the business of their choice under contract in June, so that you have the best chance to get the business sale closed and the loan funded in time.
3 Months Free Payments for Buyers
For any loans that close and fully disburse before September 30, the SBA will pay the principal and interest payments for 3 months, up to $9,000. This is absolutely incredible, as what else could be better than having your loan payments covered during a time that a buyer really should be doubling down and growing their new business. That’s essentially free money to spend on advertising, product development, new equipment, etc.
No 3% Guarantee Fee for Buyers
This is a historic offer from the SBA: for the first time, they will waive their traditional 3% guarantee fee for buyers on any new loans that close before the end of September 2021. This fee would normally be 3% of the loan value. So, let’s say that the buyer is borrowing $1,000,000 to purchase a business. That fee would have been $30,000 to borrow the money. This is a huge savings and a great incentive to purchase a business now. We did not see the SBA offer this in 2020, and we have never seen them waive this fee before, so just like the 6 months of free payments, get it while it’s hot. It’s an unbelievable opportunity to save a potentially large sum of money.
Guarantee Goes From 75% to 90%
Another surprise that came out of the SBA for this loan incentive is that they are increasing their guarantee to banks that lend on these SBA-backed loans. Normally, the SBA guarantees 75% of the loan amount. Essentially, if the buyer defaults on the loan, the SBA will cover 75% of the cost, so that the lender can recoup the majority of the loss. Now the SBA is offering lenders a 90% guarantee. This significantly lowers the risk of lending, and banks might consider lending on business acquisitions that they would have passed up before. This means that more businesses will qualify for SBA loans, and then therefore more buyers will be able to purchase them.
Don’t Have an SBA Lender? We Can Help!
Of course, these incentives offered by the SBA are for qualified buyers and businesses, and each lender has different lending rules and guidelines. Buyers will need to contact their preferred SBA lender to discuss the details of their particular situation. We are happy to connect buyers with reputable lenders, just ask us. Whatever you do, just don’t wait until it’s too late.