Submitted by: Griselda Lopez, Commercial Banking Officer at Peoples Bank
If you dream of owning your own small business, the growing number of current business owners eyeing well-deserved retirement might offer the perfect solution. According to Calder Capital, Baby Boomers own a majority of the estimated 15 million privately owned businesses in the U.S., with approximately 60 percent of these businesses owned by people born before 1964. With that in mind, roughly 10,000 Baby Boomers are estimated to retire each day.
Baby Boomer owners, along with part-time or absentee owners, are often looking to sell their companies to simplify their lives or fund their retirements. With many Gen Xers and Gen Zers seeking to invest in something of their own, acquiring these businesses is a great way to establish generational wealth. Fortunately, there are a variety of funding sources available to the next generation of business owners, including SBA 7(a) loans.
Why reinvent the wheel?
Acquiring or expanding an existing business can be a rewarding path to small business ownership. For prospective small business owners, SBA 7(a) loans can help that happen with a lower downpayment – just 10 percent – and a repayment period of up to 10 years. It can be especially useful in situations where there’s limited liquidity or business collateral.
Compared to SBA 504 loans, typically used for real estate or large capital purchases, SBA 7(a) loans are a good option when real estate may be part of a business purchase, but it can also be used for working capital needs, partial ownership buy-in and/or partner buy-out, refinancing current business debt, purchasing and installation of machinery and equipment, and purchasing furniture, fixtures, and supplies.
This could be a perfect solution for, say, a younger electrician wanting to purchase their mentor’s 40-year-old electrical business, including the business name, client base, office space, tools, equipment, and materials.
Eligibility for SBA 7(a) loans up to $5 million is based on factors such as the nature of the business, credit history, cash flow, collateral, and guarantor support.
How does the SBA 7(a) process work?
The SBA Lender Match can help buyers find an authorized SBA lender, like Peoples Bank. As a locally owned community bank in operation for over 100 years, Peoples Bank is uniquely positioned to help customers with this type of loan. Having firsthand knowledge of a customer’s personal story and financial goals is also especially helpful when it comes to processing loan applications. And, because Peoples Bank is focused on building long-standing relationships with our customers, we can also play the role of matchmaker, connecting customers nearing their retirement with young entrepreneurs just starting to build their careers.
Loan applicants will be asked to provide a standard financial package, including business and personal financial statements, tax returns, etc., along with a small business plan and collateral where available. For most applicants using a preferred lender, such as Peoples Bank, the process is expedited and typically takes about six to eight weeks.
Griselda Lopez is a Commercial Banking Officer at the Peoples Bank Moses Lake Loan Production Center. To learn more about how you can begin building generational wealth with an SBA 7(a) loan, please visit www.peoplesbank-wa.com/SBA.