In the ever-evolving landscape of business financing, changes in regulations can have significant implications for buyers, sellers, and brokers alike. As we approach June 1st, a series of substantial updates from the Small Business Administration (SBA) could potentially derail your acquisition or business financing deal. In this post, we will dissect these critical changes and provide strategic tips to navigate the new landscape.
Understanding the Major Changes
The SBA is rolling out new rules that will impact how deals are structured. It's crucial to understand these changes if you currently have a deal in process or are planning one in the near future. Here are the main points to consider:
- Partial Standby Seller Notes: These will no longer be permitted to count toward the buyer's equity injection.
- Rollover Seller Equity: If a seller retains equity post-close, even below 20%, they must personally guarantee the full SBA loan for two years following disbursement.
- Strict 10% Equity Injection Requirement: This rule is making a return, putting additional pressure on buyers to come up with cash upfront.
- Multi-Step Partial Buyouts: These are now ineligible, which could complicate some deal structures.
- Seller Notes: Seller notes are only allowed as equity if they're on full standby for the life of the loan, and they may only represent 5% or half of the required equity injection.
What Does This Mean for Buyers and Sellers?
These changes mean that buyers will need to bring more cash to the table than before. The reintroduction of the strict 10% equity injection requirement places a burden on buyers who may have been relying on seller notes or rollover equity to finance their purchase. Sellers, on the other hand, should be prepared for unexpected liabilities, including personal guarantees for loans despite holding less than 20% equity.
In essence, these adjustments are tightening the lending guidelines, making it more essential than ever for both parties to be aware of the current rules and how they impact deal structuring.
Preparing for the New Regulations
If you have a deal in process, it's absolutely critical to secure a case number as soon as possible. Failing to do so means you may have to comply with the new, stricter rules. Here are some steps to prepare:
- Consult with Your Lender: Make sure your lender is aware of the new rules and is taking the necessary steps to secure your case number.
- Understand Your Financing Options: Familiarize yourself with how the changes affect different types of loans, including SBA 7A and 504 loans.
- Be Ready to Adjust Your Deal Structure: With new requirements in place, be prepared to rethink how you structure your deals.
- Consider Professional Assistance: If you're unsure how to navigate these changes, consider reaching out to a professional who specializes in SBA financing.
Future Updates and Ongoing Support
As these changes unfold, it’s important to stay updated. The SBA is continuously revising its guidelines, and it's beneficial to stay informed about any new developments. Monthly updates on SBA rates and policy changes can provide critical insights that help you make informed decisions.
For those seeking additional guidance, consider booking a discovery call to discuss your specific needs and how we can help you navigate through the complexities of SBA financing.
Building a Legacy Through Business Ownership
On a personal note, I want to share that I recently welcomed my first child, Baby Bo. As a new parent, I am increasingly aware of the importance of building a legacy for my family. This has led me to encourage others to consider business ownership as a means to secure their financial future.
For those interested in learning more about how to leverage SBA financing, tax strategies, and the importance of owning a small business, I invite you to join our free Business Ownership Summit. These events are designed to equip aspiring entrepreneurs with the tools and knowledge necessary to succeed.
Conclusion
In conclusion, the upcoming changes from the SBA present both challenges and opportunities for buyers and sellers in the business financing landscape. By understanding these new rules and preparing accordingly, you can navigate the complexities and still achieve your acquisition goals. Remember, securing a case number is crucial, and staying informed about ongoing updates can make all the difference in structuring successful deals.
For further assistance, don't hesitate to reach out and book a call. Together, we can explore the best financing options tailored to your unique situation and help you achieve your business aspirations. Thank you for reading, and I look forward to seeing you at one of our events!