There are two primary financing methods used when purchasing a business:
1. Seller Financing - Common with small business sales, there are many different types of financing terms such as earn-outs, note, employment contracts, etc.
2. SBA Financing - SBA (Small Business Administration) loans are a common vehicle used for financing the purchase of a small business.
Each lender has parameters set by their institution regarding size and criteria; therefore, it is important to work with a Business Advisor that has access to numerous lenders and can match the transaction with the appropriate lender. The application to closing process can take 6 weeks or longer, so be prepared for this time frame when working with the lender. There is an Express processing available for certain situations.
There are several types of SBA loans, but the one almost exclusively used to purchase a business is a SBA 7(a) Loan Program. The requirements of an SBA 7(a) loan are based on specific aspects of the business and its principals. There are also fees associated with SBA loans.