Rules Change...SBA Goodwill Cap Eliminated

Good news on the financing front for business acquistion financing:  Per the new edition of SBA's Standard Operating Procedures (SOP 50 10 5B), recently posted on the SBA website, and effective October 1, 2009, there will no longer be any special limit on the amount of loan proceeds used to finance goodwill.  
 
Since March 1, 2008 the SBA has prohibited using more than $250,000 or 50% of loan proceeds (whichever is less) for financing goodwill.   Under the new rules, any amount of goodwill up to the overall lending limit of $2 million may be financed, and may be approved under delegated authority by a Preferred Lender participating in the SBA's 7(A) loan program, so long as there is at least 25% equity provided in any combination of borrower down payment and seller stand-by financing.  
 
This is a signal accomplishment for all those many in our industry who contacted SBA, associations, and members of Congress to roll back a rule that has, for much of this year, put a serious crimp in the use of SBA financing for purchasing a small business. The new rules make acquisition financing easier for borrowers, provide clarity for lenders, and significantly increase availability of SBA financing at a time when it is needed more than ever.
 
In summary, the new rules provide that:

1) If total intangible assets in the purchase price of a business (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks and non-compete agreements) are $500,000 or less in value, such intangibles may be financed using the SBA guarantee, and loan requests may be processed under the Preferred Lender Program (eg, with the Lender having delegated authority to make the credit decision, without SBA review of the loan file).
 
2) If total intangible assets in the price exceed $500,000, then in order to use PLP processing, the borrower and/or seller must provide at least 25% of the purchase price in equity, defined as any combination of borrower cash injection plus seller financing that is on full stand-by for at least 2 years (no payments of principal or interest). 

 3) If total intangible assets in the price exceed $500,000 and borrower/seller equity is less than 25%, the loan request may still be processed, but must be submitted via the Certified Lender Program or General Program, which require SBA's separate review and approval of the complete loan file

Touchstone can help you identify lenders and prepare your financing request.  Email or call Touchstone today! or visit Touchstone's website at www.touchstonebiz.com

The U.S. Small Business Administration (SBA) is now posting informational videos on YouTube.  "With millions of visitors, most of them under 35, YouTube offers a prime opportunity to use current technology and the appeal of a popular online platform to further promote the agency's programs and services," SBA Administrator Karen Mills said in a statement.  "By expanding its outreach, SBA will be providing more current and potential entrepreneurs with the necessary tools to start, grow and succeed in their businesses," she said.

SBA said it is intent on reaching this audience with its message of entrepreneurship, the importance of small business to the nation's economy, and information on the agency's programs and services.
The SBA YouTube channel (www.youtube.com/sba) debuted with a 60-second introduction to SBA, its programs and services, and a 10-part "Delivering Success" series.

Future content will include a variety of videos with more in-depth information about SBA programs and services to inform current and potential entrepreneurs.  Topics will cover how small businesses can take advantage of the Recovery Act loan programs, government contracting opportunities, exporting to increase market share, counseling and training on how to start and grow a small business, and small business success stories.