The short version
- Most buyers under about $5 million use cash, a seller note or an SBA loan.
- SBA lenders often limit debt to about three times adjusted cash flow, so SBA buyers often top out near four times.
- A seller note widens the buyer pool and often closes faster.
- Rules and rates change, so ask your lender and CPA what applies today.
The three common ways buyers pay
For deals under roughly $5 million, buyers use cash, seller financing or an SBA loan. Many use a mix of the three.
Because the loan has to fit the company's cash flow, the buyer's financing sets a ceiling on price even when the buyer wants to pay more.
What lenders look at
SBA lenders often cap debt at about three times adjusted cash flow. Add the buyer's own cash, and SBA buyers can often afford around four times, or less. A higher multiple means more cash from the buyer.
The loan itself has a cap, which has been $5 million. Raising it takes action by Congress, so do not promise a bigger loan to yourself or a buyer.
SBA loans often do not make sense under about $300,000 in price, since the costs are high for small deals.
Seller notes
Many sellers carry part of the price, often about 10 to 25 percent, secured by a lien on the assets. This widens the pool of buyers and can speed closing. A seller financed deal may close in about six months, compared with nine to twelve with an SBA loan.
The risk is yours. A note is only as good as the buyer's ability to pay, so check their finances and security.
Two deals at once
An SBA purchase is two contracts, one between buyer and seller, and one between the buyer and the bank. Both must close together, so one delay holds up everything.
Lenders also repeat document requests and may require the landlord to sign off. Keep your records in one shared folder and start lease talks early.
What it means for your timeline
Closings tend to bunch up at the end of the year, since the fourth quarter is the busiest for bank closings. A listing that starts in September rarely closes that year.
Plan on seven to nine months from engaging a broker to closing. A seller financed deal can be faster, and a deal needing bank approval can run longer.
Screening for real financing
Ask for a proof of funds or a lender pre qualification letter before spending owner time. Be careful when a buyer claims SBA financing but has not started a loan, or pivots late to a seller note.
Read how earnings are adjusted in add backs a buyer accepts, and request a private price range to plan around.