Question:

I have a business financing question. Let’s say I want to buy a business that has a sales price of $230,000. The seller is offering seller financing of $130,000, thus all I need is a $100,000 down payment. My question is: can I get a SBA loan requiring 30% down for the $100,000 down payment (thus requiring a $30k down payment versus $100k)? Or would the seller have a problem with this since he would in effect be the “second lien holder”?

Answer:

A lot depends upon the individual seller.
In many cases where an SBA backed loan is involved, the seller also participates in a percentage of the financing and clearly understands that they are in second position.

However, in these cases the seller is usually on the line for only about 10 – 20% of the total purchase. In the case you cite the seller will be on the hook for 56% with zero security. If you are putting down only $30,000 for a $230,000 purchase price it may not meet the SBA guidelines either as borrowers under their 7(a) program are generally required to contribute a 20% down payment.
I think this may be the bigger issue.

As well, the SBA backed loans require specific personal guarantees and collateral between the business and the borrower.

While I think the terms with the seller may be flexible, you won’t have the same wide parameters with the SBA program.

Although there are some very attractive components to an SBA deal such as a lower interest rate and longer term, the downside is the personal collateral they require.

With a seller loan, while you will sign personally, their lien is against the assets of the business. In your situation, I would certainly recommend discussing this with an SBA preferred lender; however, if you have ample capital, you may wish to negotiate a bit more with the seller.