#32 SBA LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

1. “SBA-backed” does not mean the government is simply giving you the money.
2. You work directly with a lender for an SBA loan.
3. The lender still evaluates your business and repayment ability.
4. Eligibility requirements matter.
5. Loan proceeds may have permitted-use restrictions.
6. Repayment comes from the business and/or other sources according to the loan structure.
7. Variable-rate loans can produce changing payments.
8. Fees can materially affect total borrowing cost.
9. Collateral requirements may apply depending on the loan.
10. Personal guarantees may create personal exposure.
11. Business projections are not guaranteed results.
12. Acquisition financing requires careful valuation.
13. Buying a business at an inflated price can create a debt problem.
14. Working-capital estimates can be wrong.
15. Seasonal businesses may require more liquidity than expected.
16. Existing debt can reduce borrowing capacity.
17. Seller financing can change the transaction economics.
18. Lease obligations matter.
19. Tax obligations matter.
20. The business must generate enough cash flow to service debt.
21. A loan can solve a capital problem while creating a cash-flow problem.
22. Refinancing should not be assumed.
23. Default consequences must be understood before signing.
24. Loan documents—not sales presentations—control the obligation.
25. “SBA loan” is not a substitute for underwriting the business itself.

The SBA states that most 7(a) term loans are repaid through monthly principal and interest payments from business cash flow, with variable-rate payments potentially changing when the rate changes.

B. PREMIUM BUYER CHECKLIST

BUSINESS

☐ Legal entity
☐ Ownership
☐ Years operating
☐ Revenue history
☐ Profitability
☐ Existing debt
☐ Tax obligations
☐ Customer concentration
☐ Supplier concentration

PURPOSE

☐ Acquisition
☐ Working capital
☐ Equipment
☐ Real estate
☐ Expansion
☐ Refinancing
☐ Other permitted purpose

LOAN

☐ Amount
☐ Rate
☐ Fixed/variable
☐ Term
☐ Payment
☐ Fees
☐ Collateral
☐ Guarantees
☐ Covenants
☐ Default provisions

CASH-FLOW TEST

☐ Current cash flow calculated
☐ Debt service calculated
☐ Existing obligations included
☐ Owner compensation included
☐ Taxes included
☐ Working-capital needs included
☐ Downside case calculated

IF BUYING A BUSINESS

☐ Tax returns reviewed
☐ Financial statements reviewed
☐ Bank statements reviewed
☐ Customer concentration
☐ Owner add-backs verified
☐ Seller claims independently tested
☐ Assets verified
☐ Liabilities verified
☐ Contracts reviewed
☐ Litigation reviewed

FINAL QUESTION

If the business produces substantially less cash flow than the seller’s projections, can the debt still be serviced?