Policy Updates to SBA Program Benefits Business Owners While Creating Growing Access to Capital

The recently enacted Small Business Administration rules, and the recent move to grant Small Business Lending Company (SBLC) licenses to FinTech lenders have created a significant shift in the financial landscape of business transactions. These new regulations are intended to benefit underserved communities and small businesses by promoting more efficient and effective access to capital, but several lenders worry these changes may also have negative impacts on the SBA program moving forward. Still, the changes are mostly in favor of business owners and will allow greater flexibility in dealmaking. We’ll discuss the various ways in which these updates could change your approach to business transactions as well as the impact a growing number of nonbank FinTech lenders could have on the SBA program.

To give you an overview, here are some significant SBA program updates you should be aware of:

1) Liquidity rules and limits for personal finances have been removed.

2) It’s now possible to partially change ownership, whereas previously, it had to be a complete 100% change.

3) Sellers are now allowed to remain as “key” employees for an extended period of time, as opposed to the previous limit of 12 months and not being able to hold a “key” position.

4) Seller notes contributing to the down payment can be on standby for 24 months instead of the entire loan term.

5) The lender now determines approval for franchise eligibility, as the SBA Franchise registry has been removed.

Sellers Holding a Seller Note No Longer On Standby For the Life of the Loan.

Many of the new regulations are believed to have a very positive impact on our industry. The recent change to allow seller note contributions toward downpayment to be on standby for 24 months is a significant improvement. Previously, sellers who contributed to a buyer’s down payment were required to be on full standby throughout the loan’s entire lifespan. This change provides a more reasonable repayment timeline, and it is expected that more sellers will be willing to assist buyers with their down payments.

Seller Can Be Considered a “Key” Employee

The prospect of a seller staying on as a key employee has now become a reality. Surprisingly, this is something the SBA has said they would never allow in the past but now appears to be happening. This development is crucial for our industry, especially those businesses that require a specialty license, such as HVAC, Plumbing, Electrical contracting, and more. With the seller allowed to remain with the business as a key employee, the buyer can hold the license moving forward. This rule shift took effect in August of 2023. This allows for additional flexibility for specialty businesses as we advance.

Removal of Liquidity Rules Opens Door for High-Net-Worth Buyers

Previously, borrowers were only allowed to keep a certain amount of “Liquidity” after closing, and if their liquidity was too high, they would become ineligible for SBA financing. However, with this requirement removed, high-net-worth individuals of any level can now secure financing for acquisitions. These buyers typically seek larger businesses and are now eligible for the 7(a) program. This change will likely increase the pool of potential buyers for numerous businesses.

SBLC Licenses Granted to NonBank FinTech Lenders

Additionally, the SBA recently lifted the moratorium for licensing new SBLCs. The premise is to provide lower-served communities greater access to start-up capital loans ranging from 25K to 100K. The SBA has since granted 3 SBLC licenses to nonbank FinTech lenders. FinTech lending uses digital technology to enable lenders to issue loans through websites or mobile applications. The SBA is going to allow this algorithm-based lending, something that was done for PPP loans in the past. However, there are mixed opinions and concerns from several lenders such as banks with the Independent Community Bankers of America (ICBA) proposing the need for greater oversight and regulation for these FinTech lenders, arguing that loans from these lenders can be acquired with minimal criteria, no personal interviews, and little communication.

Why the ICBA Opposes Opening SBA 7(a) Loan Program to Nonbank FinTech Lenders.

During the PPP loan years, many FinTech lenders emerged to help small businesses expedite their assistance loans. However, the FinTech sector has a significant problem: it has been implicated with high levels of PPP loan fraud and default. This ICBA fears that FinTech lenders may soon be responsible for unprecedented levels of default within the program, which has never been seen in the SBA’s 70-year history. If the default rates of these lenders even come close to those of the PPP loans, the entire program may run out of funds to guarantee acquisition loan requests within a year. This could result in American taxpayer dollars being used to provide future funding for the program. A program that has not received government funding since 2001. This prompted the ICBA to testify before Congress. They explained how community banks have historically gone to great lengths to ensure buyers qualify for such loans. They went on to explain how they work for many months with potential start-ups to help create business plans, compile projections, and provide valuable advice through the first years of operation to ensure success. They argued this level of advice and guidance is critical to borrowers’ repayment ability and greatly decreases defaults on this type of financing. These were among several reasons the ICBA believes that nonbank FinTech lending is no substitute for federally regulated bank lending within the SBA 7(a) Loan Program. The SBA, however, challenged many of these concerns and said it was not a fair comparison to equate fraud in PPP with potential fraud in the regular 7(a) loan program, citing the latter program’s “well-established and robust operating policies and procedures.”

In Summary

The recent SBA changes will benefit both those looking to buy or sell a small business. While many within the industry are keeping a close eye on nonbank FinTech lenders moving forward—there are still great lending opportunities. Moreover, the SBA introduced several policy changes that help create greater flexibility in dealmaking for buyers and sellers, such as giving sellers looking to support a buyer’s down payment a more palatable 24-month timeline to start receiving repayment. It’s an exciting time for small business owners and entrepreneurs, especially as possibilities that previously seemed out of reach are becoming increasingly attainable. This is an ideal time to plan your future move or business acquisition. If you’re thinking about your business exit or next acquisition process, contact V-AID for help navigating these changing guidelines so you can best capitalize on available opportunities.

V-AID Business Investment Advises on Sale of Pigtails & Crewcuts Plano & Prosper

V-AID Business Investment Advises HMF TEAM, INCORPORATED and HMF TEAM 2, LLC on Sale of Pigtails & Crewcuts Plano & Prosper to SDNY Group, LLC.

Plano & Prosper – V-AID Business Investment is pleased to announce the sale of Pigtails & Crewcuts Plano & Prosper to SDNY Group, LLC. Pigtails & Crewcuts Plano is in a 1,165 SF retail strip center at 4801 W. Park Blvd Suite 417, Plano, TX 75093 and Pigtails & Crewcuts Prosper is in a 1,480 SF retail strip center at 960 Preston Road Suite #50, Prosper, TX 75034.

Pigtails & Crewcuts Plano was established by HMF TEAM, INCORPORATED in 2019, and Pigtails & Crewcuts Prosper was established by HMF TEAM 2, LLC in 2021, and both locations have been operated by the original owner ever since. The majority of the customers are Mid to High-income families with kids. The owners have built a great business and customer base by utilizing the business model and support from the franchisor.

Moon Kim with V-AID Business Investment, as an exclusive business broker for Pigtails & Crewcuts Plano and Pigtails & Crewcuts Prosper, provided sell-side advisory services for HMF TEAM, INCORPORATED and HMF TEAM 2, LLC from business valuation, marketing, and negotiating the sale to transfer of business. V-AID Business Investment is a fully-fledged business broker and M&A advisor that assists the business owners in selling their business for the maximum value while finding the right buyer who can continue to grow the business.

” Founded in 2002 and franchising since 2004, Pigtails & Crewcuts is an over 60-location franchise salon chain dedicated to children’s hair. By acquiring two units of this well-established franchised salons, Buyer is now in good position to rapidly expand this venture into 4-5 multi-unit salon franchises in North Dallas territories,” said Moon Kim, Managing Director for V-AID Business Investment in Dallas.

About V-AID

Since 2001, V-AID Group, a team of resilient business brokers and M&A advisors in Dallas TX, has been specializing in selling small to mid-size businesses in the main street to the lower middle market. V-AID’s experienced team of experts has a proven strategy that will ensure strict confidentiality, a streamlined selling process, and the maximum value for the business. With deep expertise accumulated from hundreds of done deals, V-AID delivers superior results by providing clients with strategic planning and creative solutions tailored to each transaction. Combining V-AID’s proprietary database of buyer networks and industry-leading marketing, V-AID offers a proven selling method that has been the solution to a value-added exit for hundreds of business owners with a completion of 616 transactions totaling over 138 Million Dollars and continuing.

Q2 2023 Market Pulse Report

This survey covers important topics, such as How Advisors are Using AI Tools in 2023, Greater Interest from PEGs and Former C-suite Individuals, Lending Environment Remains a Challenge, Dip in Market Confidence, Business Value, Time to Close, Financing Deals in 2023, What Are They Buying?.
The quarterly IBBA and M&A Source Market Pulse Survey was created to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM-$50MM). The national survey was conducted with the intent of providing a valuable resource to business owners and their advisors.

V-AID Business Investment Advises CYG Eagle Postal Service, LLC. on Sale of Eagle Postal to Crownhall Ventures, LLC.

City of Dallas – V-AID Business Investment is pleased to announce the sale of Eagle Postal to Crownhall Ventures, LLC. Eagle Postal is in a 2,141 SF retail strip center at 5955 Alpha Rd. #102, Dallas, TX 75240 and a 1,000 SF retail strip center 5931 Greenville Ave, Dallas, TX 75206.

Eagle Postal was originally established in the early 1980s and changed hands several times, and CYA Eagle Postal Service, LLC acquired the business in 2022. The customers consist of a good mix of the demographics that live in the surrounding area and individuals that pass by this location on their commute. More than half of the total sales are from customers using a more reliable carrier such as DHL to send documents and packages overseas.

Kevin Chung with V-AID Business Investment, as an exclusive business broker for Eagle Postal, provided sell-side advisory services for CYG Eagle Postal Service, LLC. from business valuation, marketing and negotiating the sale to transfer of business. V-AID Business Investment is a fully-fledged business broker and M&A advisor that assists the business owner in sell their business for the maximum value while finding the right buyer who can continue to grow the business.

“Once a poorly operated multi-location courier and parcel business by the previous owner, the current owner acquired the business two years ago and more than tripled the net operating income by eliminating unnecessary labor costs, adding more services and retail items, and focusing on improving customer service and experience. The sales have been continually improving and the buyers saw the opportunity to take advantage and made a respectable cash offer which was gladly accepted by the current owners, who had other plans to invest the proceeds from the sale into other businesses. All in all, it was smooth sailing from the due diligence process, interactions between the buyer and the seller, the lease approval process, and to the closing. Both parties walked away happy and were excited about the future.” said Kevin Chung, CBI, VP of Business Brokerage for V-AID Business Investment in Dallas.

About V-AID

Since 2001, V-AID Group, a team of resilient business brokers and M&A advisors in Dallas TX, has been specializing in selling small to mid-size businesses in the main street to the lower middle market. V-AID’s experienced team of experts has a proven strategy that will ensure strict confidentiality, a streamlined selling process, and the maximum value for the business. With deep expertise accumulated from hundreds of done deals, V-AID delivers superior results by providing clients with strategic planning and creative solutions tailored to each transaction. Combining V-AID’s proprietary database of buyer networks and industry-leading marketing, V-AID offers a proven selling method that has been the solution to a value-added exit for hundreds of business owners with a completion of 611 transactions totaling over 136 Million Dollars and continuing.