As the U.S. economy begins to open up and the world looks to adjust to a new normal, one positive consequence resulting from the pandemic is the incredible opportunity now presented to business buyers. The federal government's response to keep Main Street afloat during difficult times also delivers discounted acquisition rates for new or expanding entrepreneurs. Perhaps the two most notable pieces include the following changes to interest rates and payback terms for SBA 7a loans.
- Historically Low Interest Rates. On March 15, in an emergency move to keep credit flowing and help propel economic growth, the Federal Reserve cut its benchmark interest rate to 0 - 0.25 percent, down from 1 - 1.25 percent. This allows lenders to offer small-business loans at historically low rates.
- SBA Subsidized Loan Payments. The new Cares Act includes a Debt Relief program, where the SBA will pay the first six months of principal, interest, and fees on behalf of the borrower for new and existing SBA loans closed before September 27. These payments will be made as a subsidy, meaning there is no obligation for repayment, essentially providing six months of no principle and interest for the buyer.
It's important to note that closing a loan takes time. Therefore, buyers wanting to take advantage of the Debt Relief program should aim to apply for a loan no later than July 31.
Asset Sales Provide an Additional Opportunity
Whether for retirement, a change in lifestyle, or because of financial difficulty as a result of Covid-19, many owners are selling their businesses as an asset sale. Rather than simply shutting the place down, an asset sale provides an exit route for businesses with zero cash flow. In some instances, this involves only equipment and inventory, while in others, it can include business permits and real estate.
Through an asset sale, a buyer is acquiring only the business's assets and not having to pay for cash flow. This can save both time and money, and in many cases requires only a few short months of downtime before opening up. Some landlords may also be willing to negotiate lease terms, since they do not want to lose a tenant.
Business Well-Positioned for a Post-Covid-19 Economy
While some businesses are struggling to adapt to the coronavirus pandemic, others are thriving. Many traditional retail and service businesses that are regularly relied upon to fulfill our needs continue to perform well.
Furthermore, as the economic landscape continues to change, many businesses are uniquely positioned for future growth opportunities. These sorts of businesses can be great investments, as buyers can get a clear idea on how they perform during trying times.
Businesses that are currently doing well during the pandemic include:
- >grocery stores, liquor stores and essential retailers
- medical and health care businesses
- cleaning services, laundry, and waste-disposal businesses
- locksmiths, auto repair and other essential services, and more
A Bright Future
According to BizBuySell's Insight Report, the past three years showed historically strong markets. The first 63 days of 2020 followed this pattern, with the financial performance of sold businesses increasing year-over-year. Despite the downturn, the median cash flow was up 10.9 percent and median revenue up 11.1 percent for Q1 of 2020 compared with the prior year. These numbers show the potential the market may return to once the pandemic is behind us.
Overall, for those buyers who are well positioned and able to withstand a short period of downtime, today's conditions present a once in a lifetime opportunity to buy a business.