During our time of economic challenges, it seems that SBA has chosen the wrong time to tighten up the rules regarding Business Acquisition financing! Effective March 01, 2009, SBA has implemented the following changes regarding the financing of GoodWill related to a business acquisition:
"In no event may the amount of goodwill financed by an SBA guaranteed loan exceed 50% of the loan up to a maximum of $250,000".
This means, that the seller will need to step up to the financing plate and take a subordinate lien position to the bank and SBA on 50% of Goodwill that is part of the sales price of the business.
For loan applications where the request for 7(a) financing of goodwill exceeds the limits identified above, and the seller is not able to finance the GoodWill,SBA will require the lender to complete an extensive host of additional analysis to determine if it is feasible. One requirement (on all business acquisitions), is the business appraisal. This must be ordered by the bank from an independent, approved appraiser. Once value has been determined to be acceptable, the lender MUST submit the loan request to SBA's Standard 7(a) Loan Guaranty Processing Center.
What does this really mean if the seller cannot finance a minimum of 50% of Goodwill?
A much longer process, than what a preferred lender would normally take, based on our expertise and delegated authority from SBA. It means that SBA is taking away our ability to make prudent lending decisions, which is why they (SBA) created the Preferred Lender Program (PLP) in the first place!
This change in "process" will be in place through August 31st, 2009, so SBA can obtain further data regarding goodwill.
Seems to me that SBA has lost IT'S Goodwill, at a time when we need it most.
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