The Industrial CapitalistThe 7(a) is the U.S. Small Business Administration’s main loan program, and it is the financing behind a large share of the small industrial businesses that change hands in this country. The SBA does not lend the money. A bank or specialist lender does, and the SBA guarantees a portion of it, which is what makes the lender willing to fund a deal it would otherwise turn down.
What it is used for
- Buying a business. The most common use in our world: an operator buying the service company they worked for, or a first-time buyer acquiring a shop with a proven book of work.
- Equipment and vehicles. Trucks, pump units, machine tools, and the like, on longer terms than most equipment lenders offer.
- Working capital and real estate. The cash to carry receivables on a growing contract, or the yard the business runs from.
What lenders look for
Cash flow that covers the loan payments with room to spare, a buyer with relevant experience, a personal guarantee from every significant owner, and usually some equity from the buyer. On an acquisition, the lender will look hard at customer concentration, the condition of the equipment, and whether the business runs without the seller. The seller often carries a note for part of the price, which the lender may require to stay in place.
What to know before you apply
Terms, fees, and the size of the guarantee are set by program rules that change, so check the current figures with a lender rather than a web page. The process takes time and paperwork; a prepared buyer with clean financials and a clear plan moves through it far faster. The personal guarantee is real: it is your name on the loan documents, which is precisely the kind of builder this publication exists to chronicle.
Related terms: EBITDA multiple, seller note, personal guarantee.