Buying an Internet-based business poses many challenges, some of which are unique to the world of online companies. One of the biggest barriers to purchasing online businesses is securing financing. For the last few years, lending options for website acquisitions have been greatly limited, but there seems to now be some light at the end of the tunnel for those who are looking to enter the world of e-commerce but don’t have the necessary capital to purchase a company outright. SBA loans are one of the options that are beginning to re-emerge to help prospective buyers secure financing.
The Effects of the Financial Crisis
Small Business Administration-backed loans were traditionally an avenue through which those looking for loans to begin small companies or purchase existing ones could obtain funds. The backing of the SBA was often enough to give lenders the confidence needed to underwrite deals, but all that changed with the financial crisis. As banks tightened their purse strings and became much less risk tolerant, even deals that came with SBA backing were often turned away, leaving many entrepreneurs unable to start or purchase companies.
The Challenges of Financing an Online Business
When banks become stricter with their lending guidelines, entrepreneurs in the e-business world are severely impacted. Financial institutions generally prefer to finance bricks and mortar transactions which may include real estate, as the assets provide more security against loss. A loan to purchase a website is far less likely to be approved because of the lack of tangible assets that can be used for collateral. To compound the problem, many commercial loan officers don’t fully understand the e-commerce world and are unable to sell new ventures to underwriters, and those responsible for approving loans similarly don’t know enough about online businesses to spot deals that are very likely to lead to success.
SBA Loan Approvals on the Rise
2012 marked the biggest year for the SBA lending programs with lending totaling $30.25 billion. Approvals for SBA-backed loans rose 24 percent, indicating financial institutions have now begun to consider and approve more small business loans with government backing. With this trend, SBA loan programs are becoming a viable lending option for many individuals who wish to purchase online businesses. With the backing of the SBA, strong borrowers now see doors open that would otherwise be closed.
While it’s too soon to tell whether or not the SBA Lending is truly making a comeback, those who are interested in purchasing an online business and have a good credit history and FICO score may want to explore the options available from the SBA. Keep in mind that SBA loans often take longer to underwrite, process and close than other types of individual and corporate financing, so if you’re working with a seller with a real sense of urgency, exploring other borrowing options may be necessary.