A breakdown of the new SBA loan rules (Part 3)

Why the new rules might end up being a good thing...

The SBA made some major rule changes to SBA 7(a) loans on June 1st.

This email is Part 3 of a short series explaining these changes and the impact they’ll have on business financing strategies.

You can read the previous parts here:

In parts 1 and 2, we covered three of the biggest changes to SBA loan rules.

Now as promised, let’s talk about what hasn’t changed, and why the new rules could be a good thing…

What hasn’t changed?

  • SBA loans still can give up to 90% of the purchase price

  • You can still have private investors cover the 10% SBA loan down payment

  • Interest rates remain the same

  • Terms up to 10 years remain the same

  • Working capital provisions are still available

And the program is still extremely favorable to buyers overall.

Why the SBA rule changes might end up being a good thing

If you’re serious about getting good at acquisitions, I think these changes could be beneficial for you.

Why?

Because these SBA rule changes will push more amateur buyers out of the market.

These are people who don’t understand the process very well. And once it becomes a little harder, they’ll just give up on acquisitions altogether.

But serious and educated buyers will be able to navigate these changes without too much trouble.

This presents new opportunities:

  1. There will be less competition for good deals

  2. There will be better prices for those who understand how to structure good deals

  3. The market will reward creative structuring and deal-making skills even more than before

  4. Motivated sellers will want to work more with better buyers

In my opinion, all of this will enhance the market advantage for business buyers.

The longer-term benefits

Here are my predictions of the longer-term benefits for most deals:

  • This will result in more stable deals with proper capitalization (there will be a better alignment between buyers and sellers)

  • There will be clearer ownership structures

  • There will be reduced risk of default

And overall, I think this will result in a healthier acquisition ecosystem.

The bottom line

The SBA has changed the rules four times since I started in acquisitions.

And every time they do, without fail, “experts” on the internet make wild claims to stir up controversy.

Depending on who you ask, it’s either the worst time or the best time ever to buy a business.

But here’s the truth:

  • SBA loans are still an amazing tool for a first-time business buyer

  • Good dealmakers will always adapt to the changing circumstances on the ground

  • We are still in a buyer’s market (there are way more deals on the market than there are buyers)

  • The fundamentals of using SBA loans haven’t changed at all

  • There are still 13 million businesses on the market that baby boomers have to sell in the coming years

So if you’ve been thinking about getting into the acquisitions game, don’t let these SBA rule changes scare you off!

They’re not a roadblock. They’re just a new path to the same destination.

Want an easy way to get started?

Every once in a while I come across acquisition opportunities that I think my subscribers might be interested in, and send out a broadcast with the details.

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Or if you want to sell a business, tell me more about it at the link below. We’ll reach out if there’s a good fit.

Onward,

— Ben Kelly

P.S.

I should note that this series was not a comprehensive overview of every single SBA change.

I only covered the rules that directly affected the strategies we use inside Acquisition Ace.

For a more in-depth breakdown, I recommend checking out this Forbes article.