Personal Balance Sheet

If you are planning to buy a business in the $500,000 to $3,500,000 range, you can significantly strengthen your application by cleaning up your personal finances (assets and liabilities) and present them in the best possible light.

Reduce your personal debt as much as possible

The less debt you have the better and the old adage is true – banks would rather lend money to somebody that doesn’t need it than somebody that does. This is because your chances of defaulting on a loan are significantly less if you have no debt, than if you have lots of debt. Even if you currently make plenty of money to pay your personal debt, the less you have the better and ideally no debt other than a home mortgage.

Reduce your monthly cash outlay

This goes hand in hand with the above. The lower the fixed monthly payments you have the stronger your application. If all you have is a reasonable mortgage payment and no other debt – you are in the top tier of what banks will be looking for. Contrary to that – if you have a giant mortgage payment, four car loans, two jets ski loans, a boat loan, and a mortgage on a second home (non-income) your risk profile is going to be substantially elevated and it will affect your application.

Build up your cash reserves

The more cash you have the better. Sell the extra car, put off the renovation project, and wait to go on the $20,000 vacation. The bigger your savings account the better the applicant you will be.

A combination of the three done right will rate you as a very strong candidate in the minds of SBA lender. Keep in mind this does not mean you cannot have any debt at all. If you have two car loans, a mortgage payment, and student loans this does not preclude you from getting a large loan to buy a business. However, less is more when it comes to personal debt. More is more when it comes to personal liquidity (cash, money market, marketable securities).

SBA 7a Loan Expert

Find Out How To Buy A Business in the $750,000 – $5,000,000 range, And Get Financing To Do It!