Can an International Trade loan finance buying a business?

Sometimes. It depends on which eligibility path the loan uses and on the type of deal (SOP 50 10 8.1, Sec. B, Ch. 5, Para. C.2).

What each path allows

• Export development or expansion: Business Expansion and ESOP and Cooperative transactions.
• Adversely affected by import competition: Business Expansion, Owner Buyout, and ESOP and Cooperative transactions.
• Neither path: Initial Acquisition.

An Initial Acquisition puts in a new majority or largest owner who was not previously an owner. It also covers a new owner employed by the business for fewer than 24 months (Appendix 15, Para. A). It is the default category.

Appendix 15 still applies

• Equity: 10%, which the lender may reduce or eliminate for a Business Expansion or Owner Buyout if the borrower has enough liquidity and no negative net worth. See Appendix 15, Para. C.2.a.
• Coverage: 1.15:1 on a Business Expansion and 1.25:1 on an Owner Buyout or ESOP deal (Para. C.2.b).
• Term: 10 years of amortization, with only the real estate portion allowed up to 25 years on a blended basis (Para. B.1).
• A Quality of Earnings report is required on a Business Expansion priced at $3,000,000 or more (Para. C.1).

The lender must also document how the loan improves your competitive position (Sec. B, Ch. 5, Para. C.1.c). A first-time buyer should look at other 7(a) options instead.