Advantages of SBA Pre-Qualification
By Alan Miklofsky
Updated 10/9/24
Getting pre-authorization or a pre-qualification through the Small Business Administration (SBA) can help potential buyers feel more confident in the financing process. Here are a few benefits to consider:
Increased Buyer Confidence: When buyers know that the business has already been reviewed for financing eligibility, they can be more assured that the acquisition process will go smoothly, making your business more attractive.
Streamlined Transaction: Pre-qualification can shorten the overall timeline of the transaction. Since some initial financial vetting is already completed, the process of securing final approval for a loan can be faster.
Broader Pool of Potential Buyers: Many buyers interested in purchasing a business rely on financing to make the purchase. Knowing that SBA financing is likely to be available can attract more interested parties, including those who may not have considered such a large acquisition without the assurance of financing.
Improved Negotiating Position: Having an SBA pre-qualification letter signals that the business is financially sound and lessens concerns about deal fallout due to financing issues. This can support your valuation and reduce requests for significant seller financing or concessions.
Validates the Asking Price: SBA lenders typically conduct a fair amount of due diligence, including verifying financials and determining the company’s value. An SBA pre-qualification can therefore provide some validation that the business is reasonably priced.
What to Keep in Mind
Fees and Time Involved: Getting pre-authorization may involve some fees and time investment for the seller. Be prepared to work with the lender and provide comprehensive financial statements and business documentation.
Buyer Qualifications Still Matter: Even with SBA pre-authorization for the business, the buyer must still qualify based on their creditworthiness, experience, and financial condition.
Discuss with Your Broker or Financial Advisor: They can guide you through this process, ensuring you choose a lender with experience in similar transactions and that you’re getting the most benefit out of the pre-qualification.
Overall, obtaining SBA pre-qualification is a strategic move that can facilitate a smoother sale, especially for businesses in the $5 to $10 million range, where financing options are a critical component of the transaction.