The short version
- Cash, an SBA loan and a seller note are the three common ways to pay.
- Lenders often cap debt near three times adjusted cash flow.
- A seller note is often ten to twenty five percent of the price.
- SBA deals close slower than seller financed ones.
Three Common Ways to Pay
Under about five million dollars, buyers usually pay with cash, a bank loan backed by the SBA or a note payable to the seller, often in a mix. The SBA loan cap is five million dollars, and raising it takes Congress.
What a Lender Allows
SBA lenders often cap debt near three times adjusted cash flow, so a buyer relying on one can usually afford a price near four times earnings or lower.
A higher multiple means the buyer must bring more of their own money. SBA loans often do not make sense below about three hundred thousand dollars.
Seller Notes
A seller note is commonly ten to twenty five percent of the price and is secured by a lien on the assets. It widens the pool of buyers, and it also means you carry some risk after closing.
Ask your attorney how the note is secured and what happens if payments stop.
Timing
An SBA deal is really two deals, one between buyer and seller and one between buyer and bank, and both must close together. A seller financed deal can close in about six months, against nine to twelve with an SBA loan.
Working Capital
Lenders may want cash left in the business to run it. If the buyer must fund that cushion separately, the effective price rises. Decide who provides it before the offer.
Screening Buyers
Ask for proof of funds or a lender letter before giving owner time. A buyer who says they will use an SBA loan but has not started one deserves a polite question.
Where to Go Next
Read the note on asset sales and allocation and the one on due diligence. Then find your sale price.