Relationship Banking: The Key to Successful Business Acquisitions
Navigating the Complex World of Small Business Administration (SBA) Lending
The process of acquiring a business through SBA lending can often feel like scaling a barbed wire fence—challenging, potentially painful, but ultimately rewarding when executed properly. In our latest podcast episode, we explored the intricacies of SBA lending with Dan Foley, a business acquisition lending officer from Evolve Bank, who offered invaluable insights into what makes the process successful.
One of the most surprising revelations from our conversation was how much the relationship between the banker and the underwriting team impacts loan approval. At Evolve Bank, a preferred lender with the SBA, the cohesive relationship between departments streamlines the approval process. Unlike many financial institutions where departments work in silos or even adversarially, Evolve's team-oriented approach allows for more flexibility and problem-solving when issues arise. This collaborative environment directly benefits borrowers through faster approvals and more creative solutions to potential roadblocks.
Another critical insight concerned the importance of comprehensive business plans. Dan described how he's evolved his approach over the years from simply accepting whatever business plan clients submitted to actively helping them craft stronger, more detailed plans. This hands-on approach has dramatically improved approval rates and reduced dropout rates among potential buyers who might otherwise get cold feet after signing purchase agreements. For buyers entering unfamiliar industries, especially those requiring special licensing like HVAC or plumbing businesses, having guidance through this planning process is invaluable.
The conversation highlighted several potential pitfalls that can derail an otherwise promising acquisition. These include earnouts (which SBA doesn't allow), qualification requirements for certain industries, sellers who stay involved too long, and undisclosed prior SBA defaults. One particularly dramatic example involved a seemingly perfect deal that encountered three major obstacles: a mistaken felony charge, unfiled tax returns from the seller, and a previously unknown defaulted SBA loan that required $100,000 additional cash at closing. Despite these challenges, the deal succeeded because of honest communication and swift resolution.
Perhaps most importantly, we explored the timeline expectations for SBA loans. While underwriting typically takes about 60 days once all documents are submitted, the document collection phase beforehand can vary dramatically—from a couple of weeks to several months. This variability depends largely on factors outside the lender's control, such as CPA availability (particularly during tax season) and the buyer's ability to gather necessary financial information. Starting the process too early can actually backfire as documents expire and need to be refreshed, creating a frustrating cycle.
For business buyers, understanding that the SBA lending process isn't just about checking boxes but building relationships can make all the difference. From the initial business plan development through underwriting and closing, having a lender who acts as a partner rather than just a processor creates not only a smoother transaction but potentially a more successful business transition. After all, in business acquisition as in scaling barbed wire fences, sometimes the most important factor is having someone who knows the terrain and is willing to throw their coat over the sharp edges for you.
