Aug 26, 2022

Should I use an SBA loan broker when buying a small business?

Matthias Smith
Matthias Smith
Loan Expert

Matthias is a highly regarded loan broker and owner of Pioneer Capital Advisory. With a career across four of the largest SBA banks, he’s passionate about helping aspiring entrepreneurs fund their business acquisitions.

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In the main street segment of small business acquisitions, most buyers use some form of bank financing to acquire the businesses. That bank financing may come in the forms of a line of credit, a conventional loan, and/or an SBA 7(a) loan.

When considering finding and applying for the best loan for a given small business acquisition, small business entrepreneurs often ask whether they should hire a loan broker. Loan brokers can serve a very helpful role in assisting borrowers with acquisition financing. This guest post lays out the case for engaging with an SBA loan broker in the context of a small business acquisition.

SBA Infographic

The risks of going at it alone

As a searcher, you have both time and monetary constraints. Navigating through the financing process on your own can take a toll on both of these resources

Identifying and applying for small business financing takes time

I recently put out a survey on my Twitter profile, polling my followers that have bought a small-to-medium sized business on the number of banks that they reached out for discussing financing options. 

Matthias Tweet

85.2% of followers had reached out to between 0 to 5 banks to discuss financing options, 11.1% of followers had reached out to between 5 to 10 banks, and 3.7% had reached out to more than 10 banks. 

From past experience working directly with aspiring business owners, it takes several hours of communication (emails, phone calls, and Zoom calls) with a specific lender to thoroughly discuss and present a deal. If you consider spending 2 hours (minimum) exchanging communications with 10 lenders, that is 20 hours of time (or half of a work week)!

Given that most prospective buyers are working a full-time job, whether at their current 9-to-5 or running their current small business, finding, vetting and working with lenders can distract them from their job and take away from valuable time spent sourcing and doing diligence on acquisition targets.

Time spent applying for financing isn’t free

Self-funded searchers have financial constraints specific to the amount of money that they have available, both to deploy towards the down payment and working capital needed to buy a business as well as to use for living expenses. The longer that it takes to find and diligence the right business, the more that these funds are depleted. 

In taking the DIY (“do it yourself approach”) towards sourcing financing options, you are more likely to dip into your down payment funds and living expenses more quickly. Jim Stein Sharpe, a prominent member of the SMB search community, identifies the financial constraints that searchers have in his blog post “Cost of Searching,” where he further expands on the costs involved for searchers, referencing a range from $49,000 to $897,000. As evidenced here, being able to save on time by not taking the DIY approach to sourcing financing, will help with reducing the costs involved in your search, thereby saving you money.

A competent SBA loan broker can help you better find and close on financing

Loan brokers that work in the SBA space have networks of lenders that they know well and work with frequently. They know which lenders can deliver, and which lenders are not great at delivering. 

Loan brokers can steer you to work with the best lenders 

Additionally, loan brokers know which lenders a deal will be a great fit for a deal, which lenders will quickly pass, and which may entertain it for a period of time, and then pass. Further, loan brokers know the pricing metrics that different lenders will use for deals. By having a good sense of the potential lenders for an acquisition, loan brokers can save buyers from completing loan applications for banks that will not be a good fit. 

Loan brokers can help you get the best deal on your term loan

For example, some lenders will always price business acquisition deals at Prime + 2.75%, the max interest rate allowed by the Small Business Administration’s 7(a) guidelines. Other lenders have more pricing flexibility for deals that cash flow well as well as have a buyer that has strong personal credit (e.g., a strong credit score and credit history), transferable experience to the target company, and good personal liquidity.

Based on your loan amount, a loan broker can suggest the best options

No two lenders are alike. Loan brokers also know which lenders will take on loans of different sizes, and which lenders will finance loans in different industries.

In short, loan brokers allow you to focus on what matters: finding the best business to buy

As a searcher, working with a loan broker allows you to outsource the time and effort that goes into the financing process. Rather than reaching out to multiple banks and spending time with each of them to present your deal, and obtaining feedback from each bank on if your deal is a fit in the bank’s “credit box” or not, the loan broker takes on this work so that you can focus on the other details involved in your business acquisition.

I have first-hand experience in receiving emails from people that are working with banks that their deal is not a good fit for, and have wasted extensive time on their transaction by not having their deal in front of the correct bank. This is time that could have been saved, had the searcher worked with a loan broker.

Working with a loan broker is a proven method to save both time and money.

Want to chat with an SBA loan broker? Reach out to Pioneer Capital Advisory.

I’m the founder and owner of  Pioneer Capital Advisory LLC, a boutique commercial loan brokerage firm that focuses specifically on helping searchers in the small-to-medium business space with finding the best financing option for their business acquisition. Pioneer Capital Advisory LLC offers no cost consultations. 

The firm collects a $5,000 retainer at engagement which is returned at closing, or if the firm is not able to obtain approval from a lender on your SBA acquisition loan. For more information on Pioneer Capital Advisory LLC, you can visit our website at https://www.pioneercapitaladvisory.com/. I can also be reached via email at matthias.smith@pioneercapitaladvisory.com or via phone at 608-421-2750.

Interested in buying a small business?

Subscribe to our Buyer Updates for early access to new listings and the latest resources for navigating small business acquisitions.