In recent months, thefederal reserve bank drastically reduced interest rates. The prime rate follow suit. The Prime Rate is the most common basis banks use to determine the interest rates charged to borrowers for commercial loans. Most SBA interest rates are prime plus 1.5% to 2.5%. The difference depends on the type of loan, down payment size, borrower's credit history and experience. Today's (April 2008) prime rate is 5.25%, down from 8.25% a year ago, meaning the SBA loan interest rates are any where from 6.75% to 7.75%, making loans for purchasing a business very attractive and the lowest rates in years.
Making it even more attractive, SBA loans require only 20% down. From a buyer prospective, when a business is SBA approved, it means the bank has reviewed the business' tax returns and based upon their analysis, the business qualifies for an SBA loan. Of course, the buyer must qualify too. Their qualifications are (1) good credit history, (2) good character - no felonies, (3) several years experience in the industry, and (4) sufficient cash on hand for the down payment.
This is a win-win for the buyer and seller. For the buyer, the bank only approves these loans if there is sufficient cash flow to not only cover the interest and principal payments, but also the buyer's personal living costs plus extra cushion. For the seller, he/she gets rewarded for running clean books, getting top-dollar for their business and getting cashed-out of their business.
When a listing is designated SBA Approved on a SellingRestaurants or SellingStores website, it means the financials have been reviewed by the bank, in this case Banco Popular, and they have written a letter stating based upon their analysis of the information and given the sales price, they are willing to lend a qualified buyer the money to purcahse the business. Ask the SellingRestaurants and SellingStores agent for a copy of this letter before making an offer on an SBA approved listing.
Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.