4 | The SBA Loan Explained
The SBA’s two flagship programs — 7(a) and 504 — are the foundation of most small business acquisitions. Understanding when and how to use them unlocks smarter deals. SBA loans work because the government guarantees a portion of the lender’s risk. That makes it possible for qualified buyers to purchase businesses with as little as 10% down, even when goodwill or working capital needs are significant.
T Bank Insight We help buyers identify two to three operational quick wins they can implement immediately post-close — like pricing adjustments, vendor renegotiation, or better tracking.
SBA 7(a): Flexible Capital Funds goodwill, working capital, equipment, leasehold improvements, and soft costs Terms: Up to 10 yrs (25 yrs if real estate is primary collateral) Fully amortizing (no balloon payments) Most common for business acquisitions Use case: When buying a service business, franchise, or company with high goodwill or low hard assets.
SBA 504: Fixed Assets, Fixed Rate Funds fixed assets like real estate and heavy equipment Structure: 50% bank + 40% CDC + 10% borrower equity CDC portion is long-term, fixed- rate (often 20–25 years)
Use case: Real estate or equipment-heavy business acquisitions.
“Use 7(a) for flexibility, and 504 for long-term stability. Many deals benefit from both.”
Action Checklist Determine if your target is asset-heavy (504) or goodwill-heavy (7a) Decide whether a seller note is needed to bridge valuation Quick Summary 7(a) and 504 loans are powerful tools — used strategically, they protect your cash and expand your acquisition options.
5
For informational purposes only. Not legal, tax, or financial advice.
Made with FlippingBook - professional solution for displaying marketing and sales documents online