A wave of opportunity is coming — are you ready to catch it? Over the next five years, the Baby Boomers who have made up a substantial portion of the workforce since the 1960s will be retiring. The Silver Tsunami, as it’s been dubbed, reflects the wave of retirees who will be entering retirement, many of whom own small businesses.
Around 40% of small business owners are Baby Boomers, and as they retire, an estimated $10 trillion in business assets is predicted to transfer hands. This presents SBA lenders with a rare opportunity to bridge the gap between owners looking to sell their established businesses and entrepreneurs eager to buy them.
Why this is your moment
The sheer number of retiring adults means that their businesses will be up for grabs, either through a transition plan or through an outside purchase. Just over one-third of Baby Boomers who own a business have a transition plan, but up to 78% of Baby Boomer businesses are profitable, which presents an opportunity for up-and coming-business owners.
Entrepreneurs purchasing an established business benefit from an existing client base, experienced staff, and a proven business model. However, most buyers are not in a position to pay cash for the acquisition, which makes financing essential. SBA 7(a) loans provide a pathway to facilitate ownership transitions, allowing Baby Boomer owners to retire while ensuring their business and legacy continue on.
How to win these deals
In many cases, prospective buyers do not fit the mold for traditional financing, which is where SBA lending can make the difference. SBA 7(a) loans can provide the opportunity to borrow with a lower down payment and, in some situations, with less collateral than a conventional loan would require.
The SBA 7(a) loan program can also provide financing based on certain intangibles, such as goodwill. SBA lenders are often willing to review projections and assumptions that outline how the business is expected to grow under the new owner’s leadership. Ultimately, lenders consider the buyer’s character, financial situation, and overall vision for the business when evaluating their ability to successfully operate the company and repay the loan.
Another upside to financing acquisitions with SBA 7(a) is the potential for seller financing. In an SBA scenario, the seller has the ability to fulfill part of the required equity injection. This comes with limitations, however, and will require a careful structure to meet the lending requirements. If this is an option for your borrower, you can help the seller and buyer work together to make the deal happen.
Here’s how to connect with those aspiring to buy a business:
- Build broker relationships: Brokers often play a key role in the sale of small businesses. Building strong relationships with them can lead to client referrals when it is time to explore financing options. One way to build these relationships is attending local broker association meetings to have face-to-face interactions. You can also create a referral fee program for closed deals and develop a fast pre-approval process that brokers can promote.
- Market to retiring owners: Owners who are retiring may already have a buyer in mind, but in order to recommend your lending services, they need to be familiar with them. Offering workshops, speaker events, and lunch-and-learns geared towards your existing clients will help them understand transition and succession planning and keep you at the top of their mind when they’re ready for the next steps. You can partner with planning attorneys and CPAs who will bring specialized knowledge for various aspects of this process.
- Promote fast approvals: This is especially important if the seller is a current client and you are working to earn the buyer’s business. Training staff on SBA loan requirements allows them to identify opportunities quickly. Providing pre-qualification letters for serious buyers and streamlining documentation checklists can accelerate the process and set you apart from competitors. In addition, setting realistic expectations about SBA requirements and maintaining consistent communication throughout the process helps ensure the experience is not perceived as unnecessarily slow.
- Maintain relationships with second look partners: Sometimes a business acquisition deal comes across your desk that you simply cannot accommodate. That is when having a second-look partner like Grow America in your corner becomes invaluable. We lend nationwide, making us a strong option for deals outside your market footprint. In addition, our credit approach aligns closely with the SBA’s guidelines, without adding extra requirements beyond the SBA’s Standard Operating Procedures, which allows us to offer greater flexibility in many cases.
Red flags vs. green lights
With this wave of opportunities, it’s important to spot the good deals but also be on alert for ones that just won’t work. Avoiding businesses with red flags and spotting those with green lights will help you focus on the most viable business acquisition deals from the start.
As you work with business owners preparing to sell, be aware of these red flags that should make you think twice about moving forward with the deal.
- Owner-dependent operations
- Declining revenue over the last two or more years
- Major equipment needs
- Single customer concentration
On the flip side, you can also be on the lookout for retiring owners who run companies that have a lot of green lights showing that their company could survive changing hands.
- Multiple revenue streams
- An established and loyal customer base
- A solid management team in place
- A seller willing to provide transition support to the new owner
Take advantage of the Silver Tsunami to support new owners
The peak small business transition will happen between today and 2030, which means now’s the time to take advantage of the Silver Tsunami to facilitate ownership transitions and support new owners.
Success in this market requires more than capital—it demands specialized knowledge of business valuations, transition planning, and SBA lending complexities. When you partner with an experienced SBA lender like Grow America, you gain access to our specialized expertise, streamlined processes, and proven deal structures that help you close more business acquisition transactions faster while ensuring new owners have the support they need to thrive.
The Silver Tsunami is here. The question isn’t whether this opportunity exists—it’s whether you’re positioned to capitalize on it.