What's New

If you use the SBA Loan Program to finance your business acquisition deals, then you MUST take the time to familiarize yourself with these changes, as they could have a major impact on your deals. Below are some of the changes that will have a direct effect on all Business Acquisition loans effective May 1st, 2008.
8 Things You Should Know About the New SOP

If the buyer is acquiring a business in which the Seller has an existing SBA loan the new loan cannot be processed through the PLP program, it must go CLP.

What does this mean to you?

After the bank has approved the loan then the SBA will review the entire file and make their own credit determination. While it is not likely that SBA will decline a loan that the bank has already approved, although they do reserve that right, it will definitely delay the process. In general it will take an addition 2 to 3 weeks to get the SBA approval.

The SBA has modified the language for the Seller remaining with the business after the sale to extend to remaining as an employee.
What does this mean to you?

The Seller cannot remain with the company as an employee; he must be paid as a consultant (on a 1099). Therefore they will not be a W2 employee during the transition which means that they will not be eligible to participate in employee benefit programs (i.e. health insurance).

The SBA will no longer allow the combination of an SBA loan for the business purchase and a conventional loan for the real estate purchase, unless the lender doing the conventional loan will share first lien position on the Real Estate with the lender doing the SBA loan.

What does this mean to you?

Of course it will be very difficult to get a conventional lender to give up a portion of their security to the SBA lender. So for those deals that combined, are too large for the SBA programs you will need to do the RE deal down the line. Example: say you have a 3.5MM deal that includes 1MM of RE. You will not be able to do a $2MM business acquisition loan with an $800K conventional loan for the RE at the same time anymore.

The use of home equity for the down payment will no longer be allowed unless the buyer can show a secondary source of income sufficient enough to repay the home equity loan. In other words the home equity loan cannot be repaid from the cash flow of the business being acquired.

What does this mean to you?

If the buyer is using home equity as the source of their down payment, they will need to have closed on the home equity loan at least 90 days prior to applying for the SBA loan.

All business acquisition loans over $350K will require a third party business valuation. If you have a written third party valuation already it can be submitted but cannot be used to validate the purchase price.

What does this mean to you?

Where this can become an issue is if you are getting third party valuations done at the time you list the business, those valuations and the company that did them can not be used by the lender. So for example if you use GCF Valuation (formally Gulf Coast Financial) to do the valuation then when the lender orders theirs to satisfy this requirement they will have to use someone other then GCF. I would recommend that you find out who is on your lenders approved vendors list and choose someone else to do the valuation for the Seller.

If the buyer is using 401k (or any qualified plan money) for the down payment the lender no longer needs to submit this to SBA to get the wavier of Guaranty, as long as the ALL beneficiaries are personally guarantying the loan.

What does this mean to you?

Those deals will no longer get held up in DC, unless of course the Seller has an existing SBA loan (see item 1).

The SBA now officially recognizes partial stand-by debt as equity injection (down payment).

What does this mean to you?

If you have a deal where the buyer can not come up with the entire 20% the Seller can finance the difference on full stand-by (no principle or interest payments) or partial stand-by (interest only payments) and it will be credited toward the buyers down payment. However, remember the buyer must come up with a bare minimum 10% of the entire project.

The SBA is now requiring that all PLP lenders request as much Seller Financing as possible. Here is an excerpt of the actual language from the NEW SOP for your review.

(i) Business Valuation

(b) In addition, a lender should require as much Seller-financing as possible with the Seller-financing having a subordinate lien to the SBA-guaranteed loan on the business assets. A rule of thumb for the amount of Seller-financing that should be required is the amount being borrowed by the buyer to finance the acquisition of intangible assets such as goodwill.

This change suggests to the lenders that they should require the Seller to finance the Goodwill portion of the deal. While that is not likely to happen, it is clear that the SBA wants to see more Seller financing on business acquisitions deals.

What does this mean to you?

Don't be surprised if the Lenders you are using start asking for more Seller carry backs. While it has not been determined yet how strict SBA will be on this point, it only makes sense to be prepared for it. I think it would be wise, at this point, to educate your Sellers that SBA will most likely require them to carry some paper. My recommendation would be to prepare them up front to finance 10% of the deal.

In addition to being recognized as one of the top offices, both Bill Lange and Ken Oppeltz were recognized as a "Top Ten" international producer. "This was Bill and Ken's fourth top ten award in the past five years" noted Joann Lombardi, President of VR Business Brokers.

Jose Bravo earned his MBA and has experience selling businesses in San Diego. Jose and his family own several restaurants in San Diego. Jose is fluent in Spanish and brings trans border experience to the VR team.

John Woosley is a CPA with big firm experience. In addition, John has senior management experience working for multi-national firms both in the United States and Mexico. Like most other VR associates, John owned his own business prior to joining VR.

“VR congratulates the San Diego office for a job well done in 2004,” said JoAnn Lombardi, president of VR Business Brokers Franchise Network headquartered in Ft. Lauderdale, FL. “Finishing first again this year against strong international competition is a testament to San Diego’s professionalism.” Lombardi and VR CEO Peter King presented San Diego office owners Ken Oppeltz and Bill Lange with the award at VR’s International Convention in New Orleans in late February.

“We’re proud of our success, which we have to contribute a large measure of it to our associates,” said Oppeltz. He noted that Senior Associate Dwight Jones was ranked seventh in production for the entire nation.

“ There is no doubt that their significant contributions allowed us to achieve this honor and we thank them for their efforts,” he said.

Also important, according to Bill Lange, “is the commitment of our team of professionals to our industry and to San Diego.” All of the firm’s senior associates hold the Certified Business Intermediary (CBI) designation awarded by the International Business Brokers Association (IBBA). This certification has only been awarded to 500 people worldwide, and “is the mark of a true professional in our industry,” said Lange.

Both San Diego residents Lange and Oppeltz are CBIs who also hold the Mergers & Acquisition Master Intermediary (M&AMI) designation, an honor conferred by IBBA affiliate the M & A Source to only 54 professionals worldwide.

Founded in 1979, VR Business Brokers is headquarter in Ft. Lauderdale and has 83 offices worldwide supported by professionals trained to sell businesses in today’s complex business environment. VR offices are independently owned and operated.

The San Diego office opened in 1989 and has emerged as San Diego’s market leader in business sales, mergers & acquisitions, divestures and business valuations. The office is located at 13400 Sabre Springs Parkway, Suite 245, San Diego, CA 92128. To contact the firm, call (858) 391-3388 or click on the Internet at www.vrsandiego.com.

Lange, president and principal at San Diego’s VR Business Brokers, is among the 50 individuals in the world to receive the M&AMI designation. This credential is awarded to business intermediaries who have proven their professional excellence through verified mid-market transaction experience, education, previous certification as a Certified Business Intermediary (CBI), and peer review. Lange and his partner Ken Oppeltz are the only two M&AMI's in the San Diego marketplace.

The number of small- and medium-sized businesses for sale across the state jumped by 22 percent over the same time last year, according to the California Business Brokers Association.

It’s one indication the economy has perked up, said Ken Oppeltz, the association’s president and principal at VR Business Brokers in San Diego.

“Sellers don’t like to sell when businesses are down because they don’t get as much,” Oppeltz said.

When the economy was going well in the mid-1990s, his firm listed up to 165 businesses for sale at any given time. Last year, that number dwindled to 35. Now, it has climbed back to about 61.

Companies took a hit after the Sept. 11, 2001 terrorist attacks on New York City and Washington, D.C., Oppeltz said. Recovery didn’t start in earnest until mid-2002.

“When we finished out 2003, we had a nice solid year of profits, as opposed to 2001 and 2002,” he said. Tax returns are coming in now as proof of strong results, which are needed when buyers approach banks.

Also, with the downsizing of corporate America, more people want to invest in businesses, Oppeltz said. Ownership provides a greater sense of control and perceived job security.

Business owners want out for a variety of reasons, Oppeltz said. Many suffer burnout. Some leave because of high workers’ compensation premiums and the state’s unfriendly business laws.

“The plain and simple truth is on average, small businesses turn over about every seven to eight years, mostly because in small businesses there’s not a huge management structure. It’s hard for (owners) to take off or have a sabbatical,” he said.

Regardless of high workers’ comp rates or the overall climate toward businesses, willing buyers wait in the offing, Oppeltz said.

He noticed an increase in demand for North County businesses. He attributes it to the housing boom there. People don’t want to commute from Oceanside or Carlsbad — less expensive housing areas — into metropolitan San Diego, so owning a business provides a solution.

Colton Rickert, a Vista resident and entrepreneur who has owned an Orange County company for 27 years, recently searched for eight to 10 months before buying a Ramona UPS Store in November 2003. Last year’s field of local businesses for sale seemed tight, Rickert said.

He has another UPS Store deal pending in Oceanside. He hopes to buy six to 12 of the franchises before he’s done.

Rickert believes the number of small- to medium-sized businesses up for sale is opening up.

“I don’t think there’s necessarily a lot of good opportunities, but a lot more are out there. The good ones are still hard to find,” Rickert said.

As local manufacturing jobs continue to dwindle, more buyers will enter the market, he said. People who’ve been laid off from plants may want to invest in their own businesses. And manufacturers or those providing support services to that industry may seek to diversify their holdings.

Late last month, Randy and Lorraine Lievan put their business, El Dorado Cleaners in Chula Vista, up for sale. Randy Lievan opened the store in 1979.

“I hate to sell it because I love the store,” he said.

But he has since started 15 dry cleaning stores on the East Coast. Four of them are included in his new franchise — Dryclean Depot, a discount service that charges $1.75 per garment.

The Lievans are selling their only California store so they can spend more time together. The state’s business climate had nothing to do with them putting the store on the market.

“Every year, we say, ‘Let’s sell, and then we change our minds,’” Lorraine Lievan said.

Dry cleaning is recession-proof, she said. And the terrorist attacks two years ago didn’t have an effect on their store. With a well-established clientele and a busy location, the Lievans expect to sell the store quickly.

VR sells “Main Street” and “Middle Market” businesses to private investors, equity groups and companies. In 2002, VR’s San Diego office sold 37 San Diego-based companies, resulting in more than $50 million in transaction value. The firm’s largest transaction was over $5 million and its smallest was less than $100,000. The firm’s average transaction is $500,000.

In addition to the award for the top office in the VR network, VR San Diego Associates earned top honors, as well. Office owners Bill Lange and Ken Oppeltz split fourth place among all office owners for individual production.

“VR congratulates San Diego for another job well done in 2002,” said Peter King, president of VR Business Brokers Franchise Network headquartered in Ft. Lauderdale, FL. “No other business brokerage and middle market firm in Southern California matches San Diego’s capabilities, professionalism and dedication. The results they obtained for their clients and themselves show them to be true leaders in today’s competitive business sales marketplace.”

“We focus on what’s in the best interest of our client,” said Ken Oppeltz, the company’s executive vice president and principal. “That means we work diligently with other VR offices nationwide and with other qualified professionals through the International Business Brokers Association (IBBA) and the California Association of Business Brokers (CABB) to identify buyers and to structure deals that make a wining situation for both sides of the deal. ”

“Having Associates place in the Top Five of more than 1,000 VR Associates nationwide is a tribute to both their individual efforts and their willingness to work as a team to provide professional representation for our client companies,” said Bill Lange, VR San Diego president and principal. “VR is the only team of professional intermediaries in San Diego County and our success shows the value of teamwork.”

Oppeltz, executive vice president and principal at San Diego’s VR Business Brokers, is among the first 15 individuals in the world to receive the M&AMI designation. This credential is awarded to business intermediaries who have proven their professional excellence through verified mid-market transaction experience, education, previous certification as a Certified Business Intermediary (CBI), and peer review.

"I congratulate Ken Oppeltz for being among the first group of professional intermediaries to earn the M&AMI credential," said Henry Hicks, Chairman of IBBA. "It places Ken among the nation's top mid-market intermediaries, and lets business owners know that they can rely on Ken's advice and counsel in the sale of their mid-market company."

The M&A Source is a specialty division of the International Business Broker’s Association (IBBA), the world’s largest international organization of experienced, dedicated merger and acquisition intermediaries representing the middle market. Since 1991, the M&A Source has addressed professional issues of merger and acquisition specialists. The organization has over 200 cooperating intermediaries active in middle-market transactions across the U.S., Mexico and Europe. It provides education, networking, conferences, member tools, peer-to-peer roundtables, deal making expos and other support, all specific to M&A specialists.