19 December 2023

Chris Hurn Shares How to Use SBA Loans to Purchase an Existing Business

By Ronald Smith

Are you interested in starting your own small business? Well, guess what – you don’t always have to start from scratch. Instead, you can consider buying a business that’s already up for sale. Cool, right? And the good news is, there will be plenty of opportunities to do so in the future!

Let me explain. You see, there are lots of business owners from the boomer generation who are looking to retire and cash in on their hard work. At the same time, there are entrepreneurs who are worried about things like inflation and recession, so they’re putting their companies up for sale. That means you have a chance to snag one!

Now, here’s the big question: How do you get the money to buy one of these businesses? It’s an important question, and luckily, I’ve got the answer for you.

In this video, I’m going to talk about exactly how you can get a loan to buy a business. It’s valuable information that every business owner should know. So, sit back, relax, and get ready to learn!

Let me tell you about a great option, according to Chris Hurn, Founder/CEO of Fountainhead Commercial Capital. He suggests getting a loan backed by the US Small Business Administration.

Now, in this latest episode of US America in: 15, I sat down with Shawn Hessinger, the Executive Editor for USamerica.US, to dive deeper into this topic.

In the video, Chris Hurn covers some important points. He talks about where to go if you’re a small business owner looking to acquire a business and need financing from the Small Business Administration. He also shares the requirements and documents you’ll need to qualify.

If you’re curious about buying a business, make sure not to miss Using SBA Loans to Buy a Business.

Hey there, if you need more information after watching this episode, I can connect you with Chris Hurn. You can reach out to him at https://www.fountainheadcc.com/.

Can I Get an SBA Loan to Buy a Business?

So, can you actually use an SBA loan to buy an existing business? Well, the answer is yes! I had a chat with Chris Hurn, the Founder of Fountainhead Commercial Capital, and he shared some interesting insights. Let me break it down for you.

Shawn: What are the benefits of using an SBA-backed loan to acquire a business?

Chris: Usually, small business owners opt for SBA loan programs because the down payment required is typically half to a third of what you’d need for a conventional bank loan. That’s a huge advantage, especially given the current pandemic situation and the realization of how valuable our capital is.

Let me break it down for you in simpler terms. When it comes to commercial real estate deals, banks usually have shorter loan repayment periods, like 15 or 20 years, and may require a big payment after a few years. But with an SBA loan, you can have a longer repayment period of 25 years. No surprise, right?

These longer terms are just one advantage of SBA loans. Another big advantage is that you have more flexibility with how you use the money. Unlike traditional lenders, who may limit how you can use the loan, SBA loans allow you to use the funds for a wide range of purposes, like buying or refinancing commercial properties, making renovations or constructions, and even acquiring other businesses. And trust me, getting a business acquisition loan from a regular bank can feel like trying to find a needle in a haystack!

I also use SBA 7A proceeds for loans to buy out partners. I use them for various purposes like working capital, franchise financing, lease/hold improvements, renovations, and equipment financing. In fact, I often refinance business debts with 7A loans. It’s an incredibly versatile loan product that goes beyond what ordinary conventional banks offer.

These are the main reasons why people prefer using SBA loans, I said.

Shawn: So, what exactly is an SBA bank loan, and how does it differ from other types of loans?

Chris: Oh boy, let me tell you about the SBA. It’s been around since the 1950s, and can you believe it? It’s almost time to celebrate its 69th anniversary this July. Now, here’s what makes it extra special – it’s the only part of the government that focuses on helping entrepreneurs and growing small businesses in America. Pretty cool, huh? And you know what’s even cooler? Almost half of the jobs in America are created by these small businesses.

Now, let me clear up a common misconception about the SBA. A lot of people think that the SBA is the one dishing out all the loans. But guess what? They’re not. They don’t actually lend money themselves. What they do is serve as a safety net for private lenders. It’s like they provide insurance, or what some fancy folks call a government guarantee.

So on a typical SBA 7A loan, which is what we’re talking about, the federal government guarantees 75% to 85% of the loan amount, depending on the loan size and other factors.

The reason for this guarantee is to motivate lenders like us to offer more favorable terms. It allows us to provide loans that may be considered risky under normal circumstances.

I’m not saying that we should make bad loans; the SBA definitely doesn’t want lenders to make poor credit decisions. But they want to support lenders when a decision is a bit uncertain.

Why Now is the Best Time to Use an SBA Loan to Purchase a Business

Shawn: So, why is it especially important to talk about using SBA loans for buying businesses right now?

Chris: Well, if we’re discussing buying businesses rather than just commercial real estate, it’s particularly relevant these days due to the large number of business owners who are retiring and reaching retirement age.

Did you know that about a year ago, I read a statistic that said 56% of all small to mid-size companies in America are owned by baby boomers? It’s no secret that every single day for the next nine years, around 9,000 baby boomers are retiring.

Let me tell you something exciting—I predict there will be tons of amazing business opportunities coming up. You know why? Well, most business owners don’t want to just close up shop and walk away with nothing. They’d much rather sell their businesses if they can.

And you know what’s even better? Most of these owners don’t even want to deal with complicated paperwork or finance the sale themselves. They’d rather have someone swoop in and pay them cold, hard cash—or at least have someone who can get financing and effectively pay in cash through financing.

So guess what? We’re going to see a lot more of this in the future. Times like the pandemic we just went through kind of pushed some people to want to leave their businesses even faster. And right now, with inflation happening, more and more sellers will be ready to move on.

Exciting, isn’t it? Get ready for a boom in business opportunities like never before!

Chris: That’s exactly what I was talking about. It happens more during times like these. Also, remember when we were talking about the downside a few minutes ago? That’s one of the reasons why some banks don’t want to or a lot of traditional banks don’t like to participate in these kinds of things. It’s partly because of the economic situation we’re in.

When prices start going up, like they have been in the past year, lenders start to doubt if borrowers will be able to pay them back. You know, as their costs go up for everything, like paying employees or buying things to sell, or even just paying for shipping.

So, let’s talk about keeping prices down. One way we do that is by raising the rates on loans. The central bank, also known as the Fed, has this power. When they raise these rates, it affects the economy. It even impacts the interest rates that businesses and consumers have to pay.

But here’s the thing: when the interest rates go up, it can cause a whole bunch of other problems. Lenders get worried because they wonder if borrowers can still pay their debts. After all, with higher interest rates, the costs go up for everyone.

So, this is a tricky time for sure. That’s why you see more people hesitant to lend money right now. It’s a bit risky, you know?

What to do next to buy a business with help from the SBA

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