Sba lender wants 10 yrs of taxes

[ledbythespirit]

I’m selling to a buyer who works for me currently. She’s never bought a business so i’m guiding the process and it’s going well.

The SBA lender (is not a traditional bank) person doing to work has been good and impressed with my clean books, etc

I have an S corp with 2 DBA businesses under the S.
I am doing an Asset Sale of one of the DBA’s only. The challenge is that we do not do Schedule C’s on taxes. but the lender has been good about it bc i’m supplying

3 years of my 1120s. plus consolidated p&l’s and individual p&l’s (so 9 total) for all 3 ‘entities’ for each year. All number match up!

Today they sent me a form 8821 - i see that it allows them to get my taxes from the IRS - okay.
BUT the scope is really an over-reach as it includes:
Income: 2014-2024 (1065, 1120, 1120S, 1041)

Unemployment/ Heavy Use/Civil Penalty: 940/2290/CIV PEN 2014-2024

Withholding/Civil Penalty/Excise Tax : 941/943/943/945/6672/720/8804/CIV PRN all quarters 2014-2024

I need the sale to happen so want to continue in a positive way but this is too much. to sell this $1.5m biz i don’t wanna have to go through due diligence on this much and why the need for 1041’s when they have the 1120’s?

I have never had a penalty or anything so not worried on those things - but can they even ask for more than 3 years?

 

[mikedo]

@ledbythespirit They can ask, but I would agree that 3 years is the norm. I’d push back / ask rationale for last 10 years. Only thing I can think is that they’re concerned about volatility in the business and want to see more extended history of performance. I’d still ask the question as to why they want more than 3 years and to explain their concern / need to review farther back than that. I would throw in something like “from what I understand, 3 years is market”

Edit: it also may be due to being organized as an S Corp. they want to review for validity of S election. A little outside my scope as not really a tax guy, but if it’s a stock sale there are implications depending on buyer / validity of S election as far as how to structure the transaction. Would talk to a tax expert should this indeed be the case.

 

[jjoel10]

@mikedo I’ll echo this. They can ask, and you can say no. Three years is common and anything older than that is ancient history.

That being said, with $$$ on the line, I wouldn’t sink the ship for just this, but definitely push back.

 

[ledbythespirit]

@jjoel10 I will be repeating to myself ‘Don’t sink the ship bc you are annoyed’ ‘Don’t sink the ship….’!!

 

[linhlinh9988]

@jjoel10 Cool

 

[itsmeandylee]

@ledbythespirit Push, back. been doing SBA lending for years, this is ridiculous. If they kick your deal out lmk. I can get it funded.

 

[ledbythespirit]

@itsmeandylee Thanks! Yeah My Ad Backs are over 25% of gross sales. I felt guilty putting them down and also had a moment of … ‘why am I selling again??’ I’ll call ya if needed.. the SBA process as the seller is much more in depth than I thought!

 

[itsmeandylee]

@ledbythespirit SBA process is major brain damage in general. I'm surprised I can still think some days

 

[bharati21]

@ledbythespirit The 8821 is a lender form. Usually they request the last few years tax transcripts to make sure they line up with your tax returns to make sure you aren’t providing false returns. Don’t sweat it, it’s an internal thing for the lender.

 

[ledbythespirit]

@bharati21 But they asked for 10 years on the form and alllll kinda of forms I don’t fill out (trust forms, heavy machinery, ERC, etc etc) and 940/941’s.

i don’t like the irs having anymore to look for than needed - i can send the payroll reports right from the payroll provider - i feel like that are just crossing of so many boxes that are inefficient !

 

[lizy424]

@ledbythespirit I’m an SBA lender and the 8821 form is standard…. Going back 3 years. We never look at anything past that as that’s irrelevant. I’d say go to another lender, make sure they are a Preferred Lender with an experienced team. DM me if you need more help.

 

[nottoosure]

@ledbythespirit I went through the SBA 2 years ago to purchase my business. They requested the same thing from the previous owner, then 2 weeks later they asked me to get her last 3 years of business tax returns. They literally got the signed form back then asked for returns. I personally wouldn't read too much into it. The stack of paper we had at settlement was more than buying 3 houses at the same time. I think the SBA requires the bank to request it, whether or not they actually get the documents or review them is another thing.

Besides that they'll want the buyers left testicle, first born, a garuntee on every asset they own including the box of cookies in the cabinet, and they'll move at a snails pace to give you a variable rate 10 year loan. I am glad I used them to buy my business, I just really hate their requirements.

 

[ledbythespirit]

@nottoosure I had a great chat with the SBA office in Tampa! they said that all they need is 3 years of 1120’s and nothing more!

 

[hbc]

@ledbythespirit I thought an asset sale means no books, because they aren’t buying the business, but buying the assets, so there’s no business history associated with them.

That’s what we did, our SBA lender did not require any financials from the seller outside of the list and value of everything included in the sale.

 

[sauiyt2]

@hbc "asset sale" has different meanings for accountants, lawyers, and the taxman. Books and records of the business being acquired/sold (via a legally-speaking) asset deal are most often fair game.

 

[hbc]

@sauiyt2 Interesting, our SBA lender didn’t want them due to it being an Asset Sale.

 

[ledbythespirit]

@hbc How can any lender lend money to anyone to buy any business without seeing financials? That doesn’t make any sense to me.

I am unaware of any banks or lenders blindly giving money. Why would they take that risk? Super curious…. how is your business working out?

 

[jrh712]

@ledbythespirit If its an asset sale, I am not really sure why they care about your taxes to such a deep extent as the buyer doesn't assume old liability in the same way they would in a share sale, its effectively a brand new business from a tax/liability standpoint. They would generally only be looking at old tax records to make sure that you aren't selling them a pile of shit...

I do mostly share deals and I mostly still only ask for three to five for my own underwriting/due diligence purposes. You can probably get more, but I would ask to make sure the person underwriting the deal knows its an asset deal and not a share deal and ask why they need such detailed filing information since it won't be relevant to the buyer's liabilities...

 

[ledbythespirit]

@jrh712 They needed a 1.15 min DSCR for the buyer. The biz has 10 years of financials but the lender needs to see books to see if it is a safe investment.

The taxes are the only proof that I made the money that I claimed I made I suppose. I will re-mention that it’s an Asset sale - thanks for that. She knows and that’s why so much checking bc my taxes are for the parent S corp.

Oh and today the buyer showed me a word doc that the lender sent her to answer questions about why she wants the biz, why i’m selling, etc etc. The doc has probably 40 typos and grammatical errors - i’ve never seen anything like it. If i posted it here, not sure anyone would believe it’s real!

 

[jrh712]

@ledbythespirit So typos aside that sounds like standard financial due diligence, I do mine in a spread sheet just so I can tick it off as things get collected and my deal team can make notes right in line if there are problems with answers/data provided, but between the lawyers and the accountants I am generally asking for between thirty and sixty different items.

I will say most large institutional lenders will want a fairly good and in depth business plan and financial projections from her to lend any real money (more than six figures). You had indicated this wasn't a national lender, but the only time I haven't had to provide that kind of detail is when working with private money.

Either way, Good luck on the deal!