The U.S. Small Business Administration provides a valuable tool to help business brokers and commercial real estate brokers sell small businesses and small business properties. Whenever any institutional lender finances a business acquisition, or when we finance the purchase or new construction of a small business facility, a down payment is required. Did you know that the down payment requirement can be reduced in half with a little help from the seller? Every broker who works with small business buyers knows that preserving cash to grow the business is a strong motive for a small business owner. If the broker can help accomplish that objective, that broker increases his chances that a purchase agreement can be successfully negotiated.

The tool which SBA offers to help small businesses achieve lower down payments is the SBA’s willingness to allow seller second-lien financing in the transaction. Many conventional bank lenders will not allow a seller second lien, or they will not reduce the borrower’s down payment requirement on a dollar-for-dollar basis with second lien financing like SBA lenders can. If the seller will agree not to require repayment until the SBA loan is paid first, and if the seller accepts a second lien position behind the SBA loan, SBA now considers this “standby” debt as qualifying equity for the small business buyer. The reasons a seller will subordinate their lien and wait for payments include:

• May be able to negotiate a higher sale price
• Delay income tax liability
• Earn interest on a long term investment
• Helps a buyer qualify who may not otherwise have enough down payment
• Seller still receives most of the sale price in cash, because a small amount of seller standby financing can make a big difference for the buyer’s down payment requirement

Seller second-lien financing is an effective tool for getting more small business and small business real estate sale transactions closed. The buyer is able to qualify, and the seller is able to sell, faster. With SBA government-guaranteed financing, the small business almost always has lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank loans. By using a Preferred SBA Lender like Ameris Bank, the small business enjoys an expedited loan approval process. The broker managing the transaction enjoys a successful closing!

Reviewed July 2023

All loan subject to credit approval