In the dynamic landscape of purchasing a business, accessing capital for a down payment is usually a huge hurdle for buyers. The SBA 7A and other programs are great options for borrowing money, but traditionally, the lenders often set high bars for loan approval, which both the buyer and the business opportunity cannot achieve. It is also notoriously difficult for prospective entrepreneurs to borrow amounts ranging from less than $300,000. However, emerging alternatives are reshaping the financing landscape, offering innovative solutions tailored to the unique needs of small businesses.
One such alternative is the Jumpstart program at UFS, where Grant Ferguson, a key figure in its launch, emphasizes its uniqueness. Ferguson states, “The Jumpstart Loan is a unique loan product launched in early 2023 in response to a gap in the market for business purchases.” This program addresses the challenge of obtaining financing for smaller amounts, particularly in the initial stages of a business.
Unlike traditional lenders that often demand a two-year track record, Jumpstart’s approvals are primarily based on the buyer’s personal creditworthiness. The program offers 7 and 10-year terms, with a preference for the latter. UFS favors longer terms because they facilitate lower monthly payments, a critical factor during the startup/post-acquisition phase.
Another intriguing option for small business financing is the evolution of R.O.B.S. (Roll Overs for Business StartUps) into the 2nd generation RAP (Roth/Rainmaker Advantage Plan) offered by Benetrends Financial. Larry Carnell, VP of Strategic Development, a driving force behind these innovations, explains their significance, “It’s not how much you make, it’s how much you KEEP.” These resources enable entrepreneurs to use their retirement funds as a penalty and debt-free form of business financing. Besides funding, these resources offer substantial tax and other short and long-term benefits, reshaping the landscape for aspiring business owners.
And of course, there are more traditional alternatives like seller financing, which historically is a very effective tool for small business acquisitions. This involves the seller acting as the lender, providing the financing to the buyer. The advantages of this approach include flexible terms, negotiated interest rates, and often a smoother transaction process. Small business owners can benefit from this arrangement, especially when traditional lenders may be hesitant to extend credit. And it may help the sellers with their tax implications.
Also, contingent loans, such as earnouts and performance-based notes, add an extra layer of flexibility to financing small business transactions. Earnouts allow buyers to make payments based on the business’s future performance. This approach aligns the interests of both parties and can be structured to accommodate varying business conditions. However, navigating the intricacies of contingent loans requires expertise. Working with deal-making professionals, such as CPAs, lawyers, and Transworld Business Advisors, ensures a smoother process and better-informed decision-making in these types of structures.
In conclusion, if you can get an SBA Loan, that is probably the best choice. But if you or the business does not qualify, the good news is that small-business financing is evolving, offering a variety of non-SBA loan alternatives. Whether through innovative programs like Jumpstart at UFS, leveraging retirement funds with R.O.B.S. and RAP with Benetrends, exploring Seller Financing, or considering contingent loans like earnouts, entrepreneurs now have a diverse set of tools to secure the capital needed to fuel their business ambitions. As interest rates remain high, the entrepreneurial-financing ecosystem continues to transform; these alternatives are crucial for small business owners, and I predict they will become even more popular and easier for entrepreneurs to access in the future.
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