New Rules: What Recent SBA Changes Mean For Prospective Pharmacy Buyers

 

By: Angelo Medici

When the Small Business Administration put new purchasing rules in place early this year, prospective pharmacy buyers suddenly faced a smaller financial burden in securing their ownership dreams.

On Jan. 1, the SBA unveiled new requirements to finance a business purchase. The new standard operating procedure SBA released, referred to as SOP 50 10 5 (J) contains several modifications, but none more applicable than the changes surrounding equity injection requirements when working through a change in ownership. Previously, it required 25 percent of the total purchase price come from buyer personal liquidity, a seller holdback note, or a combination of both. The new SOP revisions requires only 10 percent of the total project cost.

In one example, an individual will be purchasing the assets of a business from the current owner. The purchase price is $700,000 ($500,000 goodwill/assets plus $200,000 inventory). Loan soft costs (business valuations, UCC searches, etc.) total $15,000. As the new buyer will not be purchasing the receivables, there will be a one-month period following the sale in which the new owner will conduct business but will not have the income to support day-to-day operations until receivables are collected 20-30 days later. For this reason, $285,000 worth of working capital will be built into the financing package to support operations for the first month. This brings our total project costs to $1.3 million. In this scenario, the buyer would need to contribute at least $65,000 (5 percent of $1.3 million).

In another example, an individual who currently owns 7 percent of the business being acquired will be purchasing the remaining 93 percent of shares from the other owners via a stock sale. Let's say the total value of the business, for all 100 percent of shares, is $1 million. This 7 percent ownership would equate to $70,000 of equity. As the buyer is purchasing the remaining 93 percent, the stock purchase price would total $930,000 (93 percent of $1 million).

 
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