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Case Study: Using SBA 7(a) Program for Management Buyouts

Share current LOB: small-business-banking

Business owners often recognize and take advantage of small business loans to finance a capital expansion or acquisition. Few small business owners, however, realize U.S. Small Business Administration’s 7(a) loan program can also be used to finance goodwill for a management buyout.

The 7(a) SBA loan program is designed to allow small business access to financing that will sustain and support a transfer and sale of business equity. The experiences of Bill Wilson show how important these versatile loans can be.

Wilson is one of the three owners of Villaro Industries,* a Western North Carolina sealants manufacturer. Villaro is a greener, more effective and cheaper alternative than its competition, and sales are booming.

In early 2011, Villaro met growing consumer demand by expanding domestic distribution into Wal-Mart and Lowe’s stores, while negotiating geographic expansion into South America. Additionally, a commercial expansion in the outdoor furniture industry was in development. Bill and his partners were struggling to keep up with demand, without compromising service.

In the midst of trying to juggle expanding distribution and growing sales, Villaro management faced an unexpected ownership hurdle: a partner needed to cash out by year-end and exit ownership.

The partners agreed on the details of his exit, and Bill met with a SunTrust banker to discuss buyout loan options. The SBA 7(a) was recommended for its flexibility and value. The only remaining challenge was the rush to close by year-end.

By carefully listening and preparing the correct paperwork to expedite the loan and effectively present the company’s shifting financials, the SunTrust team prepared the loan and managed the loan process to close on time. Unexpectedly, the exiting owner passed away days before closing. To avoid further delay of the estate or Villaro management, SunTrust was able to proficiently adjust the transaction and still close within the required timing.

Management stayed focused on the business issues of expansion and growth, and the settling of the partner’s estate was not delayed due to unresolved ownership issues. So even when faced with short deadlines and complicated scenarios, the SBA 7(a) can be expedited by an experienced lender to effectively solve small business challenges.


About SunTrust Business Owner Research: SunTrust surveys small business owners and advisors as part of its ongoing business seminars and symposiums. The small business owners attending these events include both SunTrust client and non-client business owners and are representative of the broad spectrum of businesses located in the SunTrust markets. The research cited in this report is extracted from these 5,425 small business owner surveys collected between 2007 and 2011.

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