Financing the Purchase of a Website - The Small Business Administration (SBA)
Reprinted with permission of VotanWeb.com
One of the Small Business Administration's primary objectives is to help small businesses obtain financing. Although the SBA itself does not make direct loans, it has set up a number of loan programs to assist small businesses. In connection with most of these programs, the SBA provides guarantees to the private sector lenders who actually make the loans. With this guaranty in place, these lenders will generally make loans for the purchase of websites that they would not otherwise make.
The discussion below focuses on those programs that are most commonly used by buyers in connection with financing the purchase of a website.
Section 7(a) Program
The Section 7(a) Loan Guaranty Program is one of the SBA's most important and widely used lending programs. Loans may be used for a wide variety of business purposes, including the purchase of websites and most other types of assets. Although in most cases, there is no limit on the size of the loan which can be requested from the lender, there is a limit on the amount of the loan that the SBA will guaranty. Generally the SBA will guaranty up to $1,000,000 and 75% (85% for loans under $150,000) of the loan. Thus, a $1,333,333 loan would be the largest fully guaranteed SBA loan under the Section 7(a) program.
Eligibility for this type of loan guaranty is dependent on a number of factors. The website must be operated for profit, do business in the , and have a reasonable amount of equity invested by the owner. Note that all owners of 20% or more of the website must personally guaranty the loan. The size of the website must also be below certain size limits established by the SBA. These size limits vary by industry. Additional considerations include the website 's cash flow, and the owner's character, management capability, and equity contribution.
Other details include:
Loan Maturities - Term is based on the ability to repay, the loan purpose, and the useful life of the website. The maximum maturities are (i) the shorter of 25 years or the useful life for most hard assets and (ii) 7 years for working capital.
Principal Repayments - Loan principal is structured to amortize over the period of the loan. Thus there is no "balloon" balance owing on the loan's maturity date.
Interest Rates - Interest rates can be either fixed or floating, and are negotiated between the borrower and the lender.