In this case, it was necessary to create two purchase agreements. 

The reason is that the buyer was actually acquiring to separate things. 

The first was the business itself. 

In this case, that agreement was structured as a stock sale. The type of sale can vary for tax 

purposes and to suit either party, but in this case, a stock sale fit both of their needs. 

The second purchase agreement was for the real estate involved in the transaction. This is 

actually fairly normal when real estate is a part of the business transaction. 

This is because each actually exists in its own legal entity, so they must be dealt with separately. 

As we said during the introduction of this article, buying or selling a business is never easy. 

This is especially true when an SBA loan is involved. Why the complication?

The main reason is that a business transaction typically has a flow or rhythm. The loan process often interrupts this flow, as the transaction must come to a stop while a specific item is addressed before the next steps can be taken.

In this case, there were two appraisals necessary, one for the business value and one for the value of the real estate itself. 

The business appraiser could not complete his report until the real estate appraisal was finished since he needed to know the amount of rent to add to the business appraisal.

As part of the SBA loan process, the SBA lender required an environmental review of the real 

estate to make sure there are no issues with the EPA, DEQ, or other local and state regulations. 

This review also takes time, and once it was complete, it was determined that the buyer would need flood insurance.

Instead of simply accepting this finding and the costs associated with it, the buyer reviewed the SBA Standard Operating Procedure and successfully argued that flood insurance was not necessary. Even though this issue was resolved, the argument took valuable time.

Many of the above things happened simultaneously, and it is the job of the business broker to make sure that everything is running smoothly and progress is continuous. 

Everything was going well until an unforeseen wrench was thrown into the works.

SBA Loans and the Federal Government Shutdown

Prior to Christmas of 2018, the longest government shutdown ever began. Of course, this meant that the SBA, as a non-essential government agency, was shut down as well. 

This meant that there were no loan approvals during that time. 

For small business owners and those who were buying or selling businesses, this was a huge 

disappointment. 

This transaction, which should have closed on January 2, 2019, did not close until February 8, when the government had reopened, and the SBA had caught up with the work they had missed.

Once all the due diligence, legal, accounting, tax, SBA loan documents, asset titles and 

allocations are in motion,  and now all the moving pieces of a transaction move to the escrow company. 

The purpose of the escrow process is to make sure all assets pass from the sellers to the buyer, and that they are free and clear. In this transaction, several vehicle titles were not registered correctly with the California Department of Motor Vehicles. In order to make sure the needs of the SBA lender were met, new documents had to be requested and received before the process could continue. 

Unfortunately, these were not the only challenges in the process. 

Other Challenges

There were other challenges as well, in many ways related to the timeline and complicated by the government shutdown.

The start and eventual finish of the transaction were over about a 7-month period including the end and start of a new calendar year. This created a challenge for the buyer. 

They also owned a second business and wanted to align the payroll, so all employees were under the same conditions of employment and were part of the same payroll software. This was so that federal and state taxes could be paid in the same way. 

With the new business owner taking over 

shortly after the start of a new calendar year, certain adjustments were needed. 

At the same time, the buyer wanted to learn the business, included the current model, so that he could put his own decision-making process in place. 

Because of the delays in the sale, this process did not begin as soon as he would have liked. 

However, the sellers did not want to introduce him to employees until the sale was complete in case it fell through for some unforeseen reason. 

This produced some frustration and tensions 

on both sides, but the parties were able to work it out. 

What at first would have appeared to be a simple transaction became much more complex as time went along.

Lessons Learned

There were two keys to success that stood out in this transaction. If either were missing the transaction could have died at any time.

The first ingredient was good communication. Despite the fact that the buyer and seller were 

frustrated at different times they were communicated, expressed, and addressed. 

As the business broker, this was a big part of our role here at Rogerson Business Services. 

We were in constant contact with the buyer, the sellers, the escrow company, personnel 

associated with the SBA lender, the business appraiser, the real estate appraiser, and more. 

It was our job to make sure that everyone knew where the process was, their role in it, and if there were immediate concerns that needed to be addressed.

The second ingredient was the willingness to work together to reach a positive outcome. 

Because there were so many moving pieces, the transaction could not close until all items were fully addressed and resolved. 

This process is designed to protect the buyer and the investment they are making. It also 

ensures everything is in place before they take over the business. 

Once this happens, the buyer no longer has the seller to fall back on in most cases and must be ready to handle things on their own. 

In this case, both parties wanted a positive outcome for the other and worked together to set things up for a successful transaction.