If you're thinking of purchasing an auto body shop, you may be considering financing options. In this article, we'll discuss how you can use an SBA 7a loan to finance the acquisition of an auto body shop. We'll cover the information you'll need to gather and the qualifications you'll need to meet.
What is an SBA 7a loan?
An SBA 7a loan is a government-backed loan designed to help small businesses access financing. The loans are provided by banks and other lenders, but the government guarantees a portion of the loan. This makes it less risky for the lender, which makes it easier for small businesses to access financing.
Using an SBA 7a loan to finance an auto body shop acquisition
Reggie is looking to exit his corporate career and purchase an auto body shop. He has found a business owner who is retiring and is looking to sell his three successful auto body locations in Southern California. The seller is asking for six million dollars and is willing to sell or carry between 15 and 25 percent. Reggie wants to know if an SBA loan would be a good fit for financing this acquisition.
Assuming that Reggie meets the necessary qualifications, an SBA 7a loan could be a good fit for financing this acquisition. The first step would be to gather the seller's tax returns for the past three years and a year-to-date interim statement. This information is necessary for assessing the cash flow of the business.
With an SBA 7a loan, Reggie could be allotted up to five million dollars assuming the business cash flows and can service the new loan. If the seller carries back a portion of the financing, Reggie could potentially buy all three locations with the SBA loan. If the seller leaves five percent equity in the deal on standby, Reggie may only need to bring in five percent of the total project cost.
Qualifications and paperwork required for an SBA 7a loan
To qualify for an SBA 7a loan, Reggie will need to have experience in the auto body industry or have previous business ownership experience. His creditworthiness and borrowing character will also be taken into account. He will need to fill out a personal financial statement and a few other forms.
Conclusion
An SBA 7a loan can be a viable option for financing the acquisition of an auto body shop. The first step is to gather the necessary financial information from the seller to assess the cash flow of the business. If the business can service the loan, an SBA loan could provide the necessary financing for the acquisition. As with any loan, the borrower's qualifications and creditworthiness will be taken into account.