Starting a business with someone else is a great way to launch a successful enterprise. However, as the business grows, partners may develop different visions for the company, resulting in disagreements. When this happens, it may be time for one partner to exit the business, and an important aspect of such an exit is ensuring that the valuations are fair. If you’re currently in this situation, you might wonder if you can use an SBA loan to buy out your partner. In this blog post, we’ll explore the basics of SBA loans and how they can help with partner buyouts.
Overview of SBA Loans
SBA loans are loans offered by the U.S. Small Business Administration (SBA). The SBA doesn’t directly lend to businesses but instead works with lenders to offer loans to small businesses at favorable terms.
The loans are partially guaranteed by the SBA, which means that even if a borrower defaults, the SBA will cover some of the losses incurred by the lender. SBA loans can be used for a wide variety of purposes, including buying real estate, purchasing equipment, and working capital.
Can You Use an SBA Loan for Buyouts?
The short answer is yes. SBA loans can be used for partner buyouts. SBA offers different types of loans, and each has different requirements and terms. One of the most popular SBA loans for partner buyouts is the SBA 7(a) loan.
This loan is for acquiring or expanding a business and can be used for working capital, equipment, or real estate purchases.
If you are interested in using a 7(a) loan to buyout a partner, you must pay special attention to the finances of the business. A common concern when financing buyouts is that the business might suffer as a result of the loss of expertise that comes with one person leaving a business partnership. Having strong financials can help quell these fears and help smplfy the approval proces.
Other SBA option you can consider under certain circumstances is the SBA 504 lending program, which is designed for real estate and equipment purchases.
Wrapping It Up
Partner buyouts can often be a complicated process, and financing the buyout can be equally challenging. Using an SBA loan for a partner buyout can be a game-changer for your business, but it’s essential to understand the requirements and risks associated with these loans.
So, with the above information, you are now armed with the knowledge you need to make an informed decision. As always, remember that you can seek professional advice from the Gellyfsh Commercial pros before making any decisions about your business.
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