Navigating the business world often feels like reading a compelling novel. Each year, a new chapter unfolds, bringing its own set of challenges and opportunities.

As we leaf through the pages of 2023, there's a prevailing theme: opportunity. Despite a backdrop of rising interest rates and economic shifts, the story for potential business buyers is looking more promising than you might initially assume.

Let's get into why this chapter might just be the right time for your business acquisition story to begin.

A Resilient Macro Economy

A strong macro economy is like fertile soil for small business; it provides the necessary environment for growth. As 2023 unfolds, it's evident that the U.S. economic landscape is teeming with potential.

Unemployment, often seen as a litmus test for economic vitality, paints a favorable picture. With figures consistently nestled between 3.5% and 4%, it's evident that businesses aren’t merely ticking along; they're flourishing. This isn't just a sign of established enterprises doing well. It's also indicative of the confidence and opportunities available for newcomers. When the job market is this vibrant, it suggests a broader ecosystem where industries are growing, consumer confidence is high, and new niches are ripe for the taking.

While inflation has been a concern, its recent decline from the earlier peaks this year offers another encouraging sign. It points to the adaptive nature of the economy, adjusting and recalibrating in the face of challenges.

But perhaps what stands out the most about 2023's economy is its resilience. Despite the Federal Reserve making a series of unprecedented interest rate hikes — catapulting from 0.00% to 0.25% at the start of 2022 to its current high in the table below — the economy has demonstrated a remarkable ability to weather the storm. This sort of adaptability and strength positions current and aspiring business owners in a promising light, providing a sturdy platform from which they can leap into their entrepreneurial endeavors.

Favorable SBA Loan Conditions

If you’re going to buy a business, you’ll probably use a loan. What loan you go with depends on a lot of things, from interest rates, term length, and (of course) how much money you can get.

This year, there has been a major shift in the SBA's equity requirements for its 7(a) loans, making them incredibly appealing to potential business buyers.

Equity Reimagined

Traditionally, acquiring a business with an SBA 7(a) loan required buyers to invest 10% equity. However, in what can only be described as a windfall for expanding businesses, this equity requirement can now fall to 0% — under some conditions.

If you already have a company, and you wish to buy a competitor or a related enterprise in the same sector, the financial barrier to entry is now significantly lower than it was earlier this year. It's a powerful tool for those looking to expand their empire without having to front a sizable chunk of personal capital.

Loan Combinations

While hardly a new approach, combining different SBA financing products can also expand what you’re able to do. An SBA 504 loan, for example, can’t be used to buy a business outright. However, we’ve found that combining a 504 loan (with a lower interest rate) to acquire a business’s real estate — and then a 7(a) to buy the business itself — can offer a huge windfall to a potential buyer.

With their reasonable rates and favorable terms, especially in the face of tightening lending practices, the SBA provides a ray of hope and practicality for entrepreneurs keen on charting their course in the business world.

Lender Confidence With SBA Guarantees

Lenders need trust and assurance when giving out loans, especially in uncertain economic times. The SBA's loan guarantee system plays a critical role in maintaining and boosting that confidence in 2023.

Here's the direct benefit of the SBA's approach:

Reduced Lender Risk

By guaranteeing 75% to 85% of a 7(a) loan, the SBA takes on a significant chunk of the potential risk. This makes lenders more comfortable, knowing that a large portion of their loan is secured, even if a borrower defaults.

Better Loan Terms

The assurance provided by the SBA often translates to better loan terms for borrowers. This can mean longer repayment durations, smaller down payments, or more accommodating interest rate structures.

For those looking to acquire a business, the SBA’s guarantees provide a tangible advantage. In a climate where lending standards are tightening and interest rates are climbing, the SBA’s backing makes securing a loan more straightforward and accessible.

In simple terms, the SBA’s support can make your business acquisition journey smoother and more financially manageable.

The Market’s Continued Optimism

While interest rates and lending conditions might sway, the sentiment in the business market remains positive in 2023. This optimism isn't just a feeling; it's reflected in tangible metrics and actions across industries.

Business Acquisitions Are Thriving

Despite the rise in interest rates, which typically makes financing more expensive, businesses are actively buying other businesses. This is an indicator of confidence in the long-term profitability and growth potential of the market.

Adaptable Pricing Structures

The market is adjusting to the higher rates. Although there's a noted compression in pricing due to the increased costs of borrowing, businesses are adapting. This flexibility ensures that deals are still going through, albeit with some initial negotiations.

Entrepreneurial Spirit is High

New entrepreneurs are entering the market, ready to stake their claim. This influx of fresh talent and enthusiasm is a sure sign of a healthy market environment. When individuals are willing to invest time, money, and resources, it speaks volumes about the market's perceived strength and potential.

In summary, while the financial landscape has experienced shifts, the heartbeat of the market remains strong. The consistent activity across various sectors, combined with the spirit of entrepreneurship, indicates a favorable environment for those considering business acquisitions. Even in the face of challenges, the market's optimism is a sturdy foundation for future growth.

Future Outlook: Positioning for Potential Benefits

While it's essential to assess the current climate, looking ahead is equally crucial when considering a business acquisition. Several indicators suggest that the environment will become even more favorable for those taking the leap now.

Anticipated Interest Rate Movements

Expert forecasts hint at the possibility of interest rates stabilizing, and potentially even decreasing, by the end of the year or in early 2024. For businesses that secure financing now, there might be refinancing opportunities down the line that could further reduce their borrowing costs.

Adaptable Economy

The rapid changes in the macroeconomic environment in 2023 underscore the economy's adaptability. As inflation rates begin to temper and stabilize, businesses can expect a more predictable environment for planning and growth.

Opportunities in Business Valuations

With the interest rate environment causing some disconnect between buyers' and sellers' expectations, savvy entrepreneurs might find opportunities to secure businesses at a slight discount. As the market adjusts, those businesses could very well appreciate in value, offering a solid return on investment.

Ongoing Support from SBA

The SBA's continued efforts to support and adapt to the needs of businesses mean that entrepreneurs can look forward to even more tailored financing solutions in the future.

In essence, while 2023 presents a unique set of circumstances, it's setting the stage for potential advantages for business buyers. By understanding and leveraging these future prospects, businesses can position themselves for long-term success and profitability.

I Found a Business. Now What?

If you have a plan laid out and would benefit from SBA financing, our team is happy to help. We review your deal and send it out to multiple lenders, giving you the ability to pick the terms that work best for your small business.

Complete the form below — it just takes three minutes — and we’ll be in touch to make your business acquisition or expansion a reality.

In this article:

A Resilient Macro Economy
Favorable SBA Loan Conditions
Equity Reimagined
Loan Combinations
Lender Confidence With SBA Guarantees
Reduced Lender Risk
Better Loan Terms
The Market’s Continued Optimism
Business Acquisitions Are Thriving
Adaptable Pricing Structures
Entrepreneurial Spirit is High
Future Outlook: Positioning for Potential Benefits
Anticipated Interest Rate Movements
Adaptable Economy
Opportunities in Business Valuations
Ongoing Support from SBA
I Found a Business. Now What?
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Why 2023 Is the Right Time to Buy a Business