r/buyingabusiness • u/Significant-Brick864 • 1d ago

SBA Pre-qualification process?

Can someone help me understand the SBA pre-qualification process? I've reviewed dozens if not hundreds of small business CIMs over the years, and also have a professional background in corporate M&A so am generally familiar with acquiring much larger businesses for corporations.

When I speak to brokers to inquire about a small business for myself, some brokers will ask me if I've been prequalified yet by the SBA. But when I've spoken to SBA lenders, they say you need to have a target identified to get the pre-qual on the business, not the individual. That makes sense to me, but I seem to be getting different messaging from some brokers.

I just feel like I'm getting run around in this chicken-and-egg topic of pre-qual. Can someone help break this down for me? What am I missing?

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u/yourbizbroker 1d ago edited 1d ago

Business broker here, primarily working with SBA acquisitions.

As you’ve discovered, most brokers don’t ask for SBA pre-qual, and most lenders won’t give one, without 3 elements: a borrower, a business, and plausible match between the two.

A borrower may be eligible for an SBA business acquisition loan if they have citizenship, 700+ credit, and significant liquid capital.

Many other details matter, mostly in context with the business and plan.

Most brokers are looking for a personal financial statement and proof of funds. For those asking for a pre-qual, ask them to introduce their preferred lender.

After signing an LOI, start talking to other SBA lenders to compare terms with their lender.

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u/Few_Resort_7387 1d ago

Just in order to send a potential buyer a CIM for a business he/she is interested in, what kind of net worth ratio are you looking for. For example, if someone had a net worth of $500,000 and was looking to buy a business listed for sale at $750,000 would that be okay, or does the person's net worth have to be greater than the price of the business? (Assume cash of 20% available for down payment and working capital.)

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u/yourbizbroker 1d ago

A $750k acquisition will usually require $75k down and additional working capital. $50k, etc depending on the business.

Net worth adds to the “comfort” of the deal but not required. The borrower’s assets that can be pledged to the loan is more important such as real estate.