Can You Use an SBA Express Loan to Buy Out a Partner?
Yes. The SBA Express loan is a fantastic way to buy your partner’s share of a business. Whether they’re leaving due to retirement, the desire to move somewhere else, or simply want to try starting a business in a new industry, SBA Express loans can get you up to $350,000 in funds to execute a partBetter Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
Yes. The SBA Express loan is a fantastic way to buy your partner’s share of a business. Whether they’re leaving due to retirement, the desire to move somewhere else, or simply want to try starting a business in a new industry, SBA Express loans can get you up to $350,000 in funds to execute a partner buyout.
When It Comes to Buyouts, Business Valuation is Key
- The first step in a successful partner buyout is determine the actual worth, or value of the business. Even if you have a good idea what you think your business worth, your partner (or partners) may not necessarily agree, which is why it’s essential to discuss this in depth before agreeing to anything. If you and your partner(s) cannot agree on a value, it may make sense to bring in a third-party expert to set the record straight.
Different Ways to Buy Out Your Partner
There are several common ways to buy out your business partner, but not all of them are permitted under SBA loan rules. In general, the SBA will allow you to use loan funds for:
Lump-sup buyouts: The most efficient (but also most expensive) form of buyouts, this simply involves paying your partner one large sum to leave the business.
Buyouts over time: In this scenario, the partner leaves the business, and you agree to make a series of payments over time to repay them for their equity.
There are also several common buyout methods that are not allowed under SBA loan rules. These include:
Equity buyouts: This is when a new partner comes into a business and purchases the previous partner’s stake. Since SBA loans cannot be used to buy part of a business, the new partner would have to bring cash or find non-SBA financing in order to complete the transaction.
Earn-outs: Earn-outs occur when the leaving partner gets payments for the business over time, but also must stay with the business for a specific time period in order to ensure a smooth transition. In most cases, the leaving partner’s payments are based on the company’s performance during the transition period.
Employment contracts: In this situation, the exiting partner has sold their share of the business, but remains in an important leadership position with the company. Like equity buyouts and earn-outs, this is not allowed by the SBA. According to SBA rules, an exiting partner cannot remain as a board member, principal, or key employee of a firm once they have sold their share of the business.
What are the requirements for an SBA Express Loan?
To qualify for an SBA Express Loan, businesses must meet the eligibility requirements determined by the SBA 7(a) program. These requirements include:
- Operating for profit in the USA
- Having been in operation for at least two years
- Meeting SBA size standards
- Having already looked for alternative funding
- No delinquencies or debt obligations to the US government
Certain businesses may be ineligible, and borrowers must have good character and a credit score of 600-650 to be approved. Additional documents, such as a personal history statement and financial projections, may be required. If approved, the funds will be disbursed within 90 days and a guaranty fee will be required.
For more information, please visit https://www.sbaexpress.loans/sba-express-loan-requirements/.
What are the advantages of using an SBA Express Loan to buy out a partner?
The SBA Express Loan is a great option for buying out a partner because it offers a number of advantages. These include:
- Flexible repayment terms: The SBA Express Loan offers repayment terms of up to 10 years, which can make it easier to manage the cost of the buyout.
- Lower interest rates: The SBA Express Loan offers lower interest rates than traditional bank loans, which can help to reduce the overall cost of the buyout.
- No collateral required: The SBA Express Loan does not require any collateral, which can make it easier to secure the loan.
- Faster processing: The SBA Express Loan can be processed and approved much faster than traditional bank loans, which can help to speed up the buyout process.
What are the disadvantages of using an SBA Express Loan to buy out a partner?
The main disadvantage of using an SBA Express Loan to buy out a partner is that it does not allow for certain common buyout methods, such as equity buyouts, earn-outs, and employment contracts. According to SBA rules, an exiting partner cannot remain as a board member, principal, or key employee of a firm once they have sold their share of the business. Additionally, the SBA will not allow loan funds to be used to buy part of a business.
How long does it take to get approved for an SBA Express Loan?
SBA Express loans are very fast. Expect a determination on your application within three days, maximum. And after that, funds will typically be dispersed in as few as 20 days.
According to this source, it takes an average of 28-30 days to close an SBA Microloan, which may be the fastest form of SBA funding.
What documents are required to apply for an SBA Express Loan?
To apply for an SBA Express Loan, you will need to provide the following documents:
- Borrower application forms (including the SBA Form 1919)
- SBA Express Form Checklist
- Plans for loan proceeds
- Personal history statement (if applicant has a criminal history)
- Agreement of compliance (if funds are used for construction)
- An up-to-date profit and loss statement
- Financial projections
- A list of owners and affiliations
- All licenses and certifications relevant to the business
- A full history of previous loan applications
- All signed tax return documentation of both the owner(s) and of the business dating back at least 3 years
- Personal resumes of all owners with more than a 20% stake in the company
- Any and all business-related leases
Lenders are also required to make sure the applicants you have identified are allowed to do business with the government. Finally, lender discretion will also play a part in determining loan approval.
If you're approved for a loan, you'll receive your funds within 90 days, and will be required to pay a guaranty fee to the SBA within this time period. The fee is a percentage of the amount guaranteed under the SBA Express loan program, or 3% on the guaranteed portion of loan amounts between $150,001 and $350,000.
To learn more or to apply, visit SBAExpress.Loans.