Can my company use an SBA loan to buy a competitor?
Short answer
Yes, as a Business Expansion. It needs at least two full fiscal years under current ownership and must buy 100% of a business in the same four-digit NAICS group. Coverage is 1.15:1. Source: SOP 50 10 8.1, App. 15, Para. A.1.b.
Yes. SOP 50 10 8.1, Appendix 15, Para. A.1.b, treats it as a Business Expansion when these conditions are met:
- Your business has operated for at least two full fiscal years under current ownership.
- It buys 100% of the ownership interest in the other business.
- The target is in the same four-digit NAICS Industry Group.
- The deal results in at least as many full personal guarantors as your existing ownership required.
Your operating business must be the borrower. If the target will operate as a separate entity, both companies are co-borrowers.
Why this category helps
- Coverage is 1.15:1 rather than 1.25:1 (Para. C.2.b).
- The lender may reduce or waive equity if the borrower has enough liquidity and no negative net worth (Para. C.2.a).
What still applies
- A Quality of Earnings report is required at a price of $3,000,000 or more.
- The seller must exit, with consulting capped at 24 months.
- The combined size of your company and the target must meet SBA size standards (Section A, Ch. 1, Para. D.2).
A target in another industry
A purchase outside your four-digit NAICSThe federal code system that sorts businesses by industry. group does not qualify as a Business Expansion. Initial Acquisition is the default category, with its higher coverage and fixed equity (Para. A.1).
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