How to Prepare Your St. Augustine Business for an SBA-Financed Sale: 6 Steps

If your buyer needs financing — and the vast majority of buyers in the $300K–$3M range do — they’ll most likely pursue an SBA 7(a) loan. SBA lenders have specific requirements that your business needs to meet. The good news: preparing your business for SBA-financed buyers also makes it more attractive to all buyers. Here are six steps to get SBA-ready.

Step 1: Ensure Your Reported Income Supports the Purchase Price

SBA lenders use your reported income — from tax returns, not just internal financials — to determine how large a loan the business can support. They need to see that the business generates enough cash flow to cover loan payments (typically at a 1.25x debt service coverage ratio) plus pay a reasonable owner salary. If your reported income is low because you’ve been running personal expenses through the business, you need to address this years before a sale.

Step 2: File Clean, Consistent Tax Returns for Three Years

SBA lenders require three years of business tax returns. These returns need to be filed, accurate, and consistent with your internal financials. Large unexplained discrepancies between your tax returns and your P&L statements create red flags that can derail financing. Consistent, professionally prepared tax returns are a prerequisite for SBA-financed sales.

Step 3: Price Your Business Within SBA-Financeable Ranges

SBA loans can finance up to $5 million, but the actual amount a lender will approve is determined by your business’s cash flow. Work with your broker to price your business at a level that a qualified buyer can finance based on your actual earnings — not at a number that requires a buyer to bring significantly more cash than SBA programs require. Overpriced businesses lose SBA-eligible buyers.

Step 4: Resolve Any Outstanding Tax Liens or Business Liabilities

SBA lenders will not close a loan if the business has outstanding tax liens or unresolved legal liabilities. Before going to market, work with your CPA and attorney to identify and resolve any such issues. The State of Florida and the IRS both report business tax liens, which lenders check routinely during underwriting.

Step 5: Verify That Key Assets and Contracts Are Transferable

SBA lenders require that the assets being acquired — including customer contracts, intellectual property, and lease rights — can legally transfer to the buyer. Review your major contracts and lease for assignment clauses, and resolve any transfer restrictions before you list. A business that can’t cleanly transfer its key assets to a new owner is not SBA-financeable.

Step 6: Get a Certified Business Valuation

For SBA loans above $250,000 (which covers most business acquisitions), lenders typically require an independent business valuation. Having a certified business valuation prepared before going to market accelerates the financing timeline for your buyer and reduces the risk of a deal falling apart because an independent appraisal comes in below the agreed price.

Want to know if your business is ready for an SBA-financed sale in Northeast Florida? Contact Ryan C. Winter for a confidential review.

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Related Reading

• SBA Loans and Buying a Business in St. Augustine, FL
• How Do SBA Loans Affect the Sale of My Business?
• The SBA Loan Process for Buying a Business in Northeast Florida: What to Expect

• Category: SBA Financing, St. Augustine