Friday, September 11, 2009

Due Diligence when Buying a Small Business - Part 4

In a previous post, Due Diligence Part 3, we talked about how to deal with tax returns, in Due Diligence Part 2 we talked about Sales Tax issues. Here in Part 4 we'll talk about a background check you might considered getting when you are in the due diligence process of buying your small business. Do diligence is not just about investigating the small business accounting, it's about the entire business..

A business background check might turn up nothing, which is probably good. Or a business background check could turn up everything from tax liens, lawsuits with suppliers or customers or even criminal activity. Basic background checks can be very inexpensive and are available online. One possible source is Background Now.

Due Diligence is supposed to give you comfort, if you check everything and there are no deal killers you can complete the purchase of your small business and sleep a lot better.

Wednesday, September 9, 2009

SBA Loans have new underwriting policy

A few days ago the SBA came out with a new lending policy to be used when buying a business. Business brokers are very excited about this change since it will facilitate more financing for small business purchases. About 15 months ago the SBA made a draconian change in their underwriting that eliminated business acquisition financing for goodwill in excess of $250,000. This 2008 policy change effectively dried up SBA lending for buying a business sales. Small business financing is a unique problem since the loans are usually not large enough for lenders to make much profit.

SBA loans are a very important part of the small business financing options. The newly released SBA business loan policy allows up to $500,000 in goodwill financing or if the buyer puts up at least 25% in equity the goodwill limit is uncapped.

This policy change is important because the goodwill value in the transaction is an indication of a highly profitable business.

SBA loans are back and business buyers and sellers will be more able transfer business ownership to retain jobs and help their communities grow.

Teaching a course at Lone Star College

I have agreed to teach a course on "how to find the right business" at Lone Star College. Course will be at 4 different campuses. For info go to