When creating an exit plan for a business, whether you plan to sell it or groom a successor, you must prepare well in advance. If you’re planning to sell, you need to focus on how to effectively market your business to buyers. While you may have a specific type of buyer in mind, you can attract more potential investors by applying to get your business pre-qualified for an SBA loan. If approved, this gives you a significant advantage when marketing to buyers who need the financing.

Documents Required for SBA Pre-Qualification

You must get all of your financial documents in order when preparing to sell a business. This is so you are ready to disclose them to buyers as soon as the need arises. To speed up the SBA pre-qualification process, you should also have these documents ready to send to the lender:

• Federal tax returns from the past 3 years
• Year-to-date Profit & Loss statement and Balance Sheet
• Accounts Payable and Accounts Receivable aging reports
• The Broker’s Offering Memorandum which should include the asking price and what’s included in the sale
• The Seller’s Discretionary Earnings (SDE) calculation for the past 3 years and interim. This should identify all addbacks the lender should consider. It should also explain all non-standard addbacks, outside of seller’s compensation, depreciation, amortization, interest expenses, non-recurring expenses, family wages that do not need to be replaced
• Customer concentration details, if applicable

Be sure to clearly label all files and submit them as an organized package. Respond in a timely manner to all questions and lender inquiries. Requests for new documents should be turned around quickly as well. Full transparency is the key to a successful pre-qualification, so be thorough and don’t withhold information.

Working with a Broker

It is common practice for business brokers to create relationships with lenders so they can seek SBA pre-qualifications for new listings. This helps brokers to attract buyers that need financing, but it also helps them to address any potential issues with the business. If any weaknesses are exposed during the process of gathering documents, a broker can help the seller resolve them before listing the business for sale. This is one luxury that working with a broker provides. A business owner trying to sell on their own may otherwise not catch these shortcomings. A business broker’s experience and relationships also allow them to accelerate the process of communicating with buyers, maintaining confidentiality and negotiating deal terms. While they are being expedient, you can continue to run your business with minimal interruptions. Brokers have lists of qualified buyers already looking for businesses to invest in before you put yours on the market.

What to do Once a Buyer is Identified

While getting your business pre-qualified for an SBA loan can make it more marketable, the buyer still must qualify on their end. Once a buyer is identified, they will be introduced to the lender by either the seller, or the broker, whoever is handling the transaction. A Letter of Intent (LOI) is then drafted, and the broker or buyer gives the lender a copy. From that point, the ball is mostly in the buyer’s court. The lender will work with them on obtaining documentation as well as reviewing their financial qualifications, creditworthiness, and professional experience. Adjustments to the potential loan amount must also be considered. This includes the owner’s draw needed for the buyer, owner salary adjustments if the buyer needs to hire someone to replace the owner, and adjustments to rental expenses if the rent is to increase.

Getting your business pre-qualified for an SBA loan will certainly provide you with an edge when listing it for sale or negotiating contract terms. It is also part of creating a sound exit strategy. Even if you don’t plan on selling for a few years, you can prepare your business for SBA approval by keeping up with your financial documents regularly. A business broker can also guide you through the process of formulating an exit plan and preparing for your eventual departure well in advance. When you’re ready to sell, they can connect you with lenders for SBA pre-qualification and market your business for sale listing effectively.

If you own a business in Southwest Florida and would like to find out more information about pre-qualifying your business for an SBA loan, consider hiring an experienced broker to manage the process so you can avoid costly mistakes and don’t get pulled away from your daily duties. Corporate Investment Business Brokers (CIBB) has been working with business owners in Fort Myers, Naples, Sarasota, and everywhere in between since 1986. We can maximize your proceeds from the sale while keeping your company’s identity confidential. To discover how much your business is worth and how we can help, contact us for a free, no-obligation consultation.