If you’re trying to sell a business, expect bankers to scrutinize the deal more closely in the wake of the COVID-19 pandemic.
Ryan Stoll, an SBA Banker at Cadence Bank, N.A. specializing in Franchise, Business Acquisition and Real Estate Lending, spoke to the GABB’s guest on Tuesday, June 16, about SBA lending and the Paycheck Protection Program (PPP) program.
Cadence Bank, along with many others, is asking clients to get help from their CPA’s to gather the information they will need to apply for forgiveness through the PPP program.
The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. New SBA guidelines have loosened forgiveness restrictions, according to Forbes, to make it easier for businesses to receive partial loan forgiveness.
Borrowers can qualify for partial loan forgiveness if less than 60% of the PPP loan is used for payroll, according to The Journal of Accountancy. The journal reported that a law signed June 5 lowered to 60% from 75% the minimum percentage of PPP funds borrowers have to spend on payroll costs to have the loans forgiven. But while the original PPP rules allowed for partial loan forgiveness under the 75% basement, the new bill passed by Congress had language that could be interpreted as saying that if the borrower did not spend at least 60% of the PPP funds on payroll costs, none of the loan would be forgiven.
“We fully anticipate the forgiveness process to take us into the first quarter of next year with many of our clients,” Stoll said. “We have 60 days to review the forgiveness application, and the SBA has 150 days to make a ruling on the forgiveness application. We’re going to be working on PPP deals into 2021.”
Cadence Bank funded just under 4,000 PPP loans worth about $1.2 billion to clients and non-clients.
In response to a question from GABB President Dean Burnette about how the PPP program will affect acquisition loans, Stoll said banks are going to be doing enhanced underwriting, more due to COVID-19 than the PPP. Loan officers are going to want to be assured that any business up for sale is able to open and do business.
Banks will want to know what precautions businesses have taken and “if there are projections provided on a deal, we need to know how COVID-19 was taken into account for the projections,” Stoll said.
“We need to have from our borrowers contingency plans for how they would operate if the economy is partially or fully shut down again,” Stoll suggested. Brokers representing sellers should have year over year statements to show the impact of the downtown. “We do expect that businesses were substantially impacted in the downturn.” But if a business can demonstrate a return to normal, “that has appeased my credit officers.
In larger transactions, credit officers will want more equity from the borrower and want the seller to hold more paper, Stoll said. Some in the industry think some service companies are over-leveraged at this time. “So we’re looking for more equity and a larger seller contribution on those types of transactions,” Stoll said. “I wouldn’t be surprised if you’re seeing banks coming back with a portion of the seller note or all of the seller note being on a payment standby for some period of time.”
But Cadence and other banks are still lending, although many bankers are warmer to essential services businesses than non-essential services businesses, he said.
“Expect us to be coming back with very firm, very final offers when it comes to the structure of the equity,” Stoll said. “There may be some negotiation with rates, but as far as equity goes, the credit officer will be very firm.”
The Georgia Association of Business Brokers, the state’s largest and most prominent association of professionals dedicated to the purchase and sale of businesses and franchises, is holding brief weekly meetings online during the pandemic. Business brokers, bankers, business attorneys and other professionals join the weekly calls to ask and answer questions about buying and selling a business during the pandemic.
To join the GABB’s Tuesday meetings, please go to
Meeting ID: 955 0652 0094
WASHINGTON—The U.S. Small Business Administration, in consultation with the U.S. Department of the Treasury, has issued new and revised guidance for the Paycheck Protection Program (PPP). This guidance implements the Paycheck Protection Program Flexibility Act (PPPFA), signed into law by President Trump on June 5, 2020, and expands eligibility for businesses with owners who have past felony convictions.
To implement the PPPFA, SBA revised its first PPP interim final rule, which was posted on April 2, 2020. The new rule updates provisions relating to loan maturity, deferral of loan payments, and forgiveness provisions.
These modifications implement the following important changes under the PPPFA:
- Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
- Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
- Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
- Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
- Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
- Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
- In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.
In addition, the eligibility threshold for those with felony criminal histories has been changed. The look-back period has been reduced from 5 years to one year to determine eligibility for applicants, or owners of applicants, who, for non-financial felonies, have (1) been convicted, (2) pleaded guilty, (3) pleaded nolo contendere, or (4) been placed on any form of parole or probation (including probation before judgment). The period remains 5 years for felonies involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance. The application also eliminates pretrial diversion status as a criterion affecting eligibility.
SBA issued revised PPP application forms to conform to these changes. The guidance and revised application forms are available on SBA’s and Treasury’s websites. SBA will issue additional guidance regarding loan forgiveness and a revised forgiveness application to implement the PPPFA in the near future.
SBA Administrator Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin praised the Paycheck Protection Program (PPP) Flexibility Act, signed into law by President Trump on June 5. They issued this statement:
“We want to thank President Trump for his leadership and commend Leader McConnell, Leader Schumer, Speaker Pelosi, and Leader McCarthy for working on a bipartisan basis to pass this legislation for small businesses participating in the Paycheck Protection Program.
“We also want to express our gratitude to Chairman Rubio, Ranking Member Cardin, Senator Collins, Congressman Roy, Congressman Phillips, and other members of Congress who have helped to create and guide our implementation of this critical program that has provided over 4.5 million small business loans totaling more than $500 billion to ensure that approximately 50 million hardworking Americans stay connected to their jobs.
“This bill will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country.
“We look forward to getting the American people back to work as quickly as possible.”Read More
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As the country faces the challenges related to the Coronavirus (COVID-19), SBA lenders in the Georgia Association of Business Brokers say they are still in business, approving loans, and can provide information about the SBA’s Economic Injury Disaster Loans.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act just passed by Congress includes programs and initiatives intended to assist business owners with whatever needs they have right now. Details included at this link.
Information about available loans is changing daily, so anyone with any questions about SBA loans available should contact a GABB Affiliate lender, and GABB will try to update information here as it becomes available.
“The SBA Team at Atlantic Capital is here as a resource to help businesses access the capital they need to continue to run and grow their companies,” says Thomas Rockwood, Vice President of SBA Lending at Atlantic Capital Bank.
Atlantic Capital, Cheryl Beer, Senior Vice President of SBA Lending at the Piedmont Bank, and other GABB affiliates who are SBA lenders say are still approving new loans for borrowers and fully participating in all of the U.S. Small Business Administration (SBA) loan programs designed to assist small business owners. These valuable GABB affiliates are still providing businesses access to capital through the SBA 7a, 504, and Express loan programs, including the Veterans Advantage loans, Woman-owned business loans, and programs for minority-owned businesses.
GABB Board member Kim Eells, Senior Vice President of SBA Business Development at Georgia Primary Bank, said as of March 18, the State of Georgia has been added as a declared state for Coronavirus Disaster Loan Assistance with the SBA. Businesses that have been adversely affected by COVID-19 may now apply for Disaster Assistance directly with the SBA, no banks involved, Eells said. These loans are up to $2,000,000, up to 30 year term, fixed rate of 3.75%. Apply online at: www.sba.gov/disaster.
“I was just on a training/conference call with SBA regarding the disaster loans,” Eells said. “They are going to make it as painless and fast as possible for the borrowers. They said everyone should apply, apply, apply.”
U.S. Small Business Administration is providing low-interest federal disaster loan funds for working capital to small businesses and private, non-profit organizations suffering substantial economic injury as a result of COVID-19.
SBA’s Economic Injury Disaster Loans:
- Offer up to $2 million in assistance
- May be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the
- Interest rate is 3.75% for small businesses
- Interest rate for non-profits is 2.75%
- Offer terms up to a maximum of 30 years (determined on a case-by-case basis)
Ryan Stoll, Vice President SBA Banker, at Cadence Bank, provided this PDF with more details about the SBA loan program.
“These funds are intended to replace lost sales or profits or for expansion for those businesses directly affected by the Covid 19 virus.,” said Susan Kite, Senior Vice President of SBA Business Development at Georgia Primary Bank. Susan has also posted information about the loans on the GABB member forum.”We are still making business acquisition loans at Georgia Primary Bank!”
For more information, please contact the SBA Disaster Assistance Customer Service Center. Call 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail firstname.lastname@example.org.
Carolyn Robinson, a Senior Vice President at Acclivity Financial, A Subsidiary of Citizens Bank, said her bank is helping “our borrowers who want a loan payment deferment. We are continuing to underwrite, process and close loans.”
Carolyn provided additional details about the three-step process for applying for SBA disaster loans.Three_Step_Process_SBA_Disaster_Loans
The GABB encourages small businesses to contact one of the many SBA lenders in our association because these lenders have a proven track record of successfully working with business owners.
“We hope that all of you stay safe and healthy in the coming weeks and months,” said David Brindley, Vice President of Live Oak Bank. “Together, we will get through this challenging time!”
Stephen “Steve” Mariani, owner of Diamond Financial Services and a board member of the International Business Brokers Association (IBBA), spoke to business brokers this week about compiling a listing or offering memorandum.
In a lively talk, which you can hear online, Mariani talked about the top things that buyers look for in a business-for-sale listing, and what lenders look for in an offering memorandum, a detailed description of a business for sale.Buyers are also interested in the location of a business as well as whether there is growth potential in the industry, Mariani said. Financing options, especially owner financing, are very important.
After the price of the business, most buyers will want to know about its cash flow and seller’s discretionary earnings. While it may be common to have family members on the payroll, claiming a personal home mortgage as a business expense is likely to attract unwanted scrutiny from lenders. And lenders are required by law to report instances of flagrant tax fraud, he said.
Listings that go through the effort to be pre-qualified by lenders, or eligible for SBA loans, are automatically more attractive to buyers, Mariani said. That means an objective professional has examined the business’s financials and brings “immediate confidence in the numbers presented.”
“If the listing can service the debt at the asking price, then cash flow after debt service becomes apparent to a potential buyer,” Mariani told the brokers. “Most buyers understand this and calculate it for themselves.”
Today’s borrowers are learning that they can purchase much more cash flow than they once thought, he said. Most high net worth borrowers are looking to maximize their ROI by using financing options. In Mr. Mariani’s PowerPoint Presentation: Compiling Offering Memoranda, he covered items every lender will look for, including purchase price, working capital, SBA fees and closing costs, etc. The GABB, an IBBA affiliate, is the state’s premier organization dedicated to professionals who buy and sell businesses in Georgia.
What three things should be left OUT of your offering document? Avoid listing specific qualifications a potential buyer must have to purchase the business, because this could scuttle a sale, Steve said. Although most lenders like to see three years of direct or one year of related experience in a field, this varies greatly.
Avoid listing personal add backs. If more than 20 percent of the seller’s discretionary earnings comes from personal add backs, the lender will be concerned.
Designating anyone at the business as a “key” employee, i.e., one that is critical to the operation and success of the business, raises a lot of red flags, may necessitate a form 1919 or a “required” personal guarantee of the employee, Mr. Mariani said.
Mr. Mariani’s company has helped small business owners realize their dreams by funding more than $1 billion in acquisition loans during the past 24 years. Diamond has become the nation’s largest privately owned non-bank SBA acquisition loan generator that serves only the broker markets. Steve has also been producing and presenting broker training webinars and workshops for the last 11 years at various conference events.
After witnessing the difficulty and challenges some business buyers experienced securing business loans to acquire a business, Mr. Mariani learned the intricate, complicated world of the Small Business Administration (SBA) loan process. He mastered the SBA SOP (Standard Operating Procedure) rules and regulations and has become a major source for many national lenders. Business Brokers, lenders and owners nationwide seek Steve’s advice and he has become the “expert” in SBA loans. His understanding of SBA rules also allows for providing the most aggressive financing available nationwide.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or email@example.com, or GABB Executive Director Diane Loupe at firstname.lastname@example.org or 404-374-3990.Read More