Important Time-Sensitive Incentive for Buyers Considering an Acquisition Now

If you are considering a business acquisition, the recently-passed CARES Act contains an important benefit you may not have heard about.  It has not received a lot of publicity.

The Act provides for a special subsidy for all outstanding Section 7(a) loans from the SBA.  It covers loans existing when the bill became law and also loans made within six months after it became law.

This is a significant benefit.  For example, for a $1,000,000 loan with a seven-year maturity, it would represent a subsidy of over $86,000.  For a five year $1,000,000, the benefit would be over $114,000.  This benefit is not a deferral. It does not have to be repaid.  This benefit is not taxable income to the borrower.  As you can see, the benefit represents a subsidy of 8% to 10% of the loan amount, significantly reducing the cost of an acquisition.  In addition, by having no payments for the first six months, borrowers will have lower cash flow requirements during the initial transition period.

Buyers considering an acquisition should consider this option, but time is of the essence.  In order to qualify, loans must be closed by September 20, 2020.  SBA loans take time to process, in normal times 60-90 days or a bit longer.  They may take longer right now because the Small  Business Administration is a very busy agency.  In addition, SBA loan officers have their hands full with troubled loans in the restaurant, transportation, hospitality and other sectors.  They are rightfully focused on servicing those troubled loans.  Almost every bank is swamped with working through the roll-out of the Payroll Protection Plan loan program as well.  You don’t have a lot of time to act, but it is worth pursuing.

If you go down this route, it will be very important to identify an SBA lender who can and will make sure your loan can get approved and closed by September 20.

If this is something you are interested in, we would be happy to speak with you and perhaps guide you to selecting the right lender in these challenging times.