February 26, 2009

SBA to limit goodwill financing

The U.S. Small Business Administration says beginning next month it will limit goodwill financing to 50 percent of the loan amount or a maximum of $250,000.

Goodwill is the value of a business that can't be accounted for through physical things like assets in a warehouse. The Washington Post reported Thursday that the new rule means if a buyer is interested in purchasing a $2 million firm and is asked to come up with a 20 percent down payment, the SBA would be able to provide a qualified buyer $250,000.

Previously, the SBA could have offered as much as $1.6 million on such a deal, said Don Naideck, president of business broker Prime Investments in North Bethesda, Md.

One of the main purposes of the SBA was to allow people to buy a business who might not qualify for a traditional loan, but now if you want to buy a $2 million business and your house only has $500,000 in equity, that's not enough, he said.

Paul Merski, senior vice president and chief economist with the Independent Community Bankers of America in Washington, called the goodwill cap arbitrary and random.