New SBA Changes to go into Effect October 1, 2009
New SBA Changes to go into Effect October 1, 2009
If you have been following the changes that the Small Business Association (SBA) has made to its SOP like I have, you would be hard pressed to see any good news on the horizon. The changes have resulted in businesses having difficulty securing funding, especially funding to put toward a business acquisition. The result was that loan activity was down 70% so the SBA agreed to review its changes and decided to put amended changes into effect on October 1, 2009.
One of the major amendments has to do with the policies that affect the financing of goodwill. The SBA’s changes that were announced in March said that only 50% of a 7(a) loan could go toward financing goodwill, and that 50% could not exceed $250,000. The recent amendments say that if the value of a business’s goodwill is less than $500,000, 100% of a loan can go toward financing it, with no restriction. If the amount of goodwill exceeds $500,000, a lender may still finance 100% of goodwill as long as the purchaser agrees to put at least 25% of the purchase value into the transaction as equity.
The underwriting rules are still stringent, and that provides an extra set of eye’s looking at the deal.
This new SOP is great news for both buyers and sellers of businesses that qualify for this type of financing.