Understanding Down Payments in SBA Loans When Buying a Business
As I embark on the journey of purchasing a small business, I’ve encountered a myriad of insights that have broadened my understanding. However, one aspect that continues to puzzle me is the down payment expectations set by sellers, particularly those who specify a requirement for a certain percentage when it comes to SBA loans, such as “20% down.”
This raises a significant question: Why is the seller concerned about the down payment amount when they are not directly financing the purchase? Is it merely about the buyer’s perceived credibility, or is there a deeper financial rationale?
From my research, it’s apparent that a higher down payment can reflect the buyer’s commitment and financial stability, potentially making them a more attractive candidate in the eyes of the seller. However, my inquiry goes a bit further. In the scenario I’m exploring, the debt servicing ratio seems unaffected whether the down payment is 10% or 20%. Is there an underlying reason why some sellers still insist on a larger upfront investment?
I welcome any insights or experiences from others who have navigated this part of the process. Understanding the motivations behind these requirements could provide valuable clarity as I move forward in my business acquisition journey. Thank you for your thoughts!
