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Business Financing Tips During The Age of Covid

Lenders are tightening requirements due to SBA pressure, concern about the economy and potential increase in defaults in the coming months and years (putting SBA guarantees to the lender at risk). It’s important to consider these tips when selling or buying:

Sellers / Selling Businesses:

  • Selling business must have sufficient cash flow for debt service coverage on new owner’s loan, lease and salary – particularly in light of the fact that down payments have been closer to 10% rather than 25%.
  • Sellers who are open to seller financing as part of any deal structure will be more likely to sell their businesses.
  • Forgivable owner notes should replace earnouts since earnouts are not allowed by SBA.


  • Buyers need to have direct experience in the industry (prior ownership or very current work experience in same industry). Indirect experience or management experience in a related industry are no longer sufficient for many lenders.
  • Buyers must have additional liquidity above and beyond a 10% cash down payment. Lenders may provide some working capital but they also want the buyer to have additional cash available after closing.
  • Buyers who plan to leave their current jobs to become owner/operators are more likely to obtain financing than buyers who want to be absentee owners. Absentee owners will need to successfully prove that they can manage the business without leaving their current jobs.