In previous articles we have discussed why selling a business in 2021 may be the best time to sell. With the federal government’s recent passing of the $900 billion Stimulus Bill major changes will be coming to the SBA 7a lending program. Will this be good news for Sellers and/or Buyers?
Indeed, this will be good news for both parties if a loan is approved between February 1, 2021 and September 30, 2021. The highlights of the new spending bill:
- 7(a) Program Changes for Business Acquisition Loans: the Stimulus Bill will waive the SBA Lending Guarantee Fees to all borrowers until September 30 2021. For loans between $500,000 and $700,000, there is a 3% guarantee fee or 2.25% of the loan amount paid to the SBA. For loans of $700,001 to $5,000,000 the fee is 3.5% of the guaranteed portion up to $1,000,000 plus 3.75% of the guaranteed portion over $1,000,000. On a $600,000 loan this means the Buyer will immediately save between and $13,500 and $18,000.
- The SBA will be making the Buyer’s payments: the original Stimulus Bill in 2020 included a provision in which the SBA would pay the first 6 months of payments for the Buyer. These payments are not tacked on to the end of the loan – they are paid in full by the SBA! The new Stimulus Bill does cap the payments at $9,000 per month but the same 6 months of payments will be made by the SBA for loans approved between February 1, 2021 and September 30, 2021.
This appears to be great news for Buyers. But how is this helpful to Sellers? Here’s why:
- Low interest rates tend to encourage buying and support higher sales prices. We’ve seen this in the housing market over the past 12 months and while business sales are much more complex, the same maxim applies. Cheap money enables buyers to maximize their investment. In short, they can afford more home (or business) for their money. When you add 6 months of zero payments this only serves to sweeten the equation. Buyers are eager to find and close on good businesses before the program expires.
- This scenario provides strong price support for businesses which are priced correctly, and this means leverage for Sellers. Strong businesses are always in demand and with more Buyers searching for these businesses it becomes more likely that a great business broker will locate and engage multiple bidders for your business.
In the history of the SBA Lending program, we have never seen the cost of money so low, and except for the latter half of 2020 when this 6 months of payments program was offered, there was never a better time to buy or sell a business. So, if your exit horizon is 2021 or 2022 now is the time to engage with an experienced business broker to unlock the highest possible value for your business.
Rocky Mountain Business Advisors is a business brokerage focused 100% on selling our clients’ business. As Business Brokers, we fathom it as our responsibility to apply a proven process to educate, prepare, and guide our clients through the sales process so that they can focus on managing their business while we focus on a successful sale. We bring a strong sense of urgency and tenacity to every engagement to realize the highest sales price in the shortest period of time. We bring buyers and sellers together. Contact us at 303-474-5582, https://rockymountainba.com/ , or schedule a free 15-minute consultation to learn more about the services that makes us one of the best business brokers in Denver.