CARES Act 2021 Extension Gives Boost to Business Buyers and Sellers

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CARES Act 2021 Extension Gives Boost to Business Buyers and Sellers

The CARES Act Debt Relief Program, which allows business buyers to take advantage of an SBA loan, has been extended under the Consolidated Appropriations Act signed into law by President Donald Trump on December 27, 2020. Keep reading to learn why this extension is great news for entrepreneurs looking to buy or sell a business.

Prospective buyers have even more leverage with an SBA loan:

  • 6 months of SBA loan payment forgiveness for loans closed after February 1, 2021. This includes principal and interest up to a maximum of $9,000 per month.
  • The SBA is waiving the guaranty fee charged to lenders and passed on to borrowers. This fee is typically around 3% and is now zero for loans closed after February 1, 2021.
  • The SBA is increasing the loan guarantee to lenders from 75% to 90% which decreases risk to lenders. Along with new wording allowing lenders to adjust for temporary COVID-19 downturns, lenders should be able to take on additional risk. It is important to note the minimum buyer down payment of 10% remains unchanged.

Business owners considering selling their business benefit from the current market conditions:

  • There are many more buyers than sellers. Buyer activity is at record levels, according to BizBuySell's Insight Report, while supply is limited. With this dynamic, businesses are selling at record prices, exceeding pre-pandemic levels.
  • SBA financed buyers are able to take advantage of significant benefits and are likely to outbid cash buyers seeking discounted prices.
  • Further guidance for PPP loan forgiveness and tax reporting has been released so the seller does not need to worry about a PPP loan liability. The loan forgiveness process for first draw and second draw PPP loans less than $150,000 is greatly simplified and provides full tax deductibility of business expenses on forgiven PPP loans.

In addition to the benefits for business buyers and sellers, the stars have also aligned for SBA lenders:

  • Uncertainty is diminishing because of the new COVID-19 vaccines. Banks know there will be a recovery period, but we can tentatively expect the economy to be normalizing by late summer.
  • Full year 2020 financials show banks how the business was impacted by COVID-19 and if it is starting to recover.
  • Cost estimations can be made so loans can be increased to allow the business to take the necessary steps to make it to a vaccinated population.

The COVID Relief provisions in the Consolidated Appropriations Act sent a clear signal to the business-for-sale community that the SBA and its lending partners are open for business, providing a perfect opportunity for buyers and sellers.

The BizBuySell Finance Center has allowed hundreds of pre-qualified buyers to search for a small businesses to buy.

An article by BizBuySell, click here for the original article. 

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