SBA Hiking Goodwill Limit Imposed on Business Purchases

SBA Hiking Goodwill Limit Imposed on Business Purchases Yielding to pressures from some Small Business Administration-approved lenders and much of the business community, the SBA has announced it will boost the limit it imposed on the amount of goodwill that can be included in a business purchased with borrowed funds.

The new cap on goodwill value is $500,000.

The agency’s ruling, last March, restricted the amount of goodwill included in any deal completed with a loan that it guaranteed. The limit was $250,000, or 50% of the loan amount, whichever was lower. But criticism and complaints from lenders and borrowers--that the rule was too restrictive--caused the agency to temporarily suspend the rule, and agree to study the issue. An SBA survey then determined that average goodwill value of businesses transactions requesting borrowed funds is about $400,000.

Also persuading the agency to re-think its mandate was the realization that the limit contributed to the drop in lending activity, one of the factors responsible for the sluggish economy. Under the new ruling, effective in October, a business with a goodwill value up to $500,000 will be eligible for SBA-backed financing.

The agency recommends that for businesses with goodwill value exceeding the new limit, the lender require the borrower to have at least 25% equity in the acquisition.

Posted on September 22, 2009  |   Email This Blog Post   |   Print This Blog Post   |  All Contributions From Peter Siegel, MBA