The short version
- Most small sales are asset sales funded by cash, an SBA loan or a seller note.
- SBA lenders often limit debt to about three times adjusted cash flow.
- A seller note usually covers a minority of the price and is often secured by a lien.
- Seller financing can close faster than an SBA loan.
Three common paths
Under about five million dollars, deals are funded with cash, an SBA loan, seller financing or a mix. Most small sales are asset sales, so the buyer takes the assets and goodwill.
SBA loans
An SBA loan involves two deals, one between buyer and seller and one between buyer and bank, and both must close together. Lenders often cap debt near three times adjusted cash flow, so SBA buyers can usually afford about four times or less.
Higher prices need more cash from the buyer. Below about three hundred thousand dollars these loans often do not make sense.
Seller notes
You can lend part of the price to the buyer. A seller note is often ten to twenty five percent of the price and is secured by a lien on the assets. It widens the pool of buyers but leaves you exposed if the business struggles.
Our guide on UCC liens shows how your claim is recorded.
Speed
Seller financing can close in about six months, versus nine to twelve with an SBA loan. Buyers should show proof of funds or a lender letter before you spend owner time.
Timing and expectations
Plan for six to nine months with seller financing and nine to twelve with an SBA lender, since the bank adds its own review.
Q4 is the busiest quarter for bank closings, so a fall listing is unlikely to close the same year.
Proof of funds comes first
Ask for a bank commitment letter or a lender prequalification, not a promise. A buyer who says an SBA loan is on the way but has not started it, or who suddenly asks for a seller note, deserves a closer look.
Buyers who keep a full time job on the side may also struggle with lenders, who want full commitment.