We're finally getting serious about selling our auto repair shop, and our broker says buyers will want an SBA 7(a) loan. What exactly do we need to have in order before we list? I know there's a stack of paperwork but I want to make sure we don't waste months chasing things. Any checklists or personal experiences would help. We've been open 18 years, profitable every year, but our books are a bit of a mess from switching software twice.
SBA Prep
Everything to check to make sure your shop is SBA loan ready
First thing I'd do is find a lender who actually does SBA deals in your industry. Not all banks are the same. We sold our landscaping business last year and the first bank we talked to wanted three years of tax returns, P&L, balance sheets, and a business debt schedule. The second bank was way more flexible because they had a dedicated SBA person.
Your books being messy is the biggest red flag. Buyers and lenders will want to see clean financials. If you switched software, make sure the transition year is reconciled and makes sense. We had to hire a bookkeeper for 6 months beffore listing and it was worth every penny.
18 years is impressive. Lenders love longevity. But they'll also look at seller's discretionary earnings (SDE). Make sure you can clearly document add-backs like your own salary, personal vehicles, etc. That's what drives the valuation and the loan aMount.
Dont forget about environmental stuff. Auto shops can have issues with old oil tanks, disposal records, etc. A Phase I environmental site assessment might be required depending on the property. That can spook buyers if not handled upfront.
Good point on environmental. Also, make sure your lease is assignable or that you own the building. If you lease, the landlord needs to be willing to work with a buyer. SBA lenders want to see a lease term that matches the loan maturity or at leaSt a renewal option.
We own the Building, so that's one less thing. But the environmental angle is new to me. We've always been careful but I don't have paperwork from the 90s. Is that a dealbreaker?
Not necessarily. A Phase I is more about current conditions and historical research. If there's no record of problems, you might be fine. But be ready to pay for the assessment yourself if a buyer assk. It's usually a few thousand bucks.
Also get your personal credit in order. SBA loans often require a personal guarantee, and lenders will pull your credit. If there are any issues, fix them now. We had a client with a 580 score and it killed the deal.
One thing that tripped us up was business licenses and permits. Make sure they're all current and transferable. The buyer's lender will want to see that the business can legally operate as-is. We had a expired signage permit that held things up for weeks.
Also, organize your customer list and any recurring revenue contracts. Even for a repair shop, if you have fleet accounts or maintenance agreements, that's a big plus for SBA. It shows stable cash flow.
Don't forget about your equipment list. Lenders may want to see a depreciation schedule and understand what's owned vs. leased. If you have older equipment, get it appraised or at least have a clear inventory with values.
This is all helpful. I'm making a list. The equipment appraisal is something I hiadn't thought of. We have some older lifts and diagnostic tools that still work fine. Would a buyer's lender require a professional appraisal?
Usually only if the equipment is a significant part of thhe collateral. For a service business, it's more about the cash flow. But having a detailed list with purchase dates and values will speed things up.
Also, make sure your tax returns mattch your financial statements. Lenders will compare them. If there are discrepancies, explain them in a letter. Better to be upfront than have them find it.
And get a business valuation done by a certified appraiser. It's not not cheap but it gives you a defensible number and shows buyers you're serious. SBA lenders like to see that.