SBA loan for a buyout, can you do it?

Can You Use a SBA Loan to Buyout a Partner?

The answer is yes, the SBA does in fact offer a loan which many business owners use to buyout partners. This loan is called the SBA 7(a) loan. The SBA 7(a) loan can help any kind of business, from startups to small businesses that have been in business for years. The SBA guarantees the 7(a) loan for many different business purposes. However, the SBA is not an actual lender but rather it guarantees loans that are funded by various lending institutions. The SBA guarantee reduces the risk for lenders. The borrower remains contractually obligated for the repayment, in full, even if there is a loan default.

Most, if not all, small businesses that are profitable are eligible for financial assistance from the SBA. However, some simply do not qualify. See the list of business qualifications per the SBA below:

  • Operate for profit;
  • Be engaged in, or propose to do business in, the United States or its possessions;
  • Have reasonable owner equity to invest;
  • Use alternative financial resources, including personal assets, before seeking financial assistance.

Special Considerations

According to the SBA, special considerations apply to some businesses and individuals.

  • Franchises are eligible except in situations where a franchisor retains power to control operations to such an extent as to be tantamount to an employment contract.
  • Recreational facilities and clubs are eligible provided: (a) the facilities are open to the general public, or (b) in membership-only situations, membership is not selectively denied to any particular group of individuals and the number of memberships is not restricted either as a whole or by establishing maximum limits for particular groups.
  • Farms and agricultural businesses are eligible; however, these applicants should first explore the Farm Service Agency (FSA) programs, particularly if the applicant has a prior or existing relationship with FSA.
  • Fishing vessels are eligible; however, those seeking funds for the construction or reconditioning of vessels with a cargo capacity of five tons or more must first request financing from the National Marine Fisheries Service (NMFS), a part of the Department of Commerce.
  • Medical facilities (hospitals, clinics, emergency outpatient facilities, and medical and dental laboratories) are eligible.

No matter what type of business you have, a partner buyout may become necessary. The best way to seek financing is to shop and compare loans from traditional banks because they offer the best rates. If you need a bit of help, the SBA 7(a) loan is a great option. We suggest that you search and compare loans using Magilla Loans before you approach a bank. This way, you can know what interest rates you may qualify for — which can save you money.