FINANCING OPTIONS

It is important that a buyer or seller know the value of a business.  If the SBA, a conventional bank, or seller is financing, both buyer & seller should have a clear idea as to the function of cash flow. 

 It is advised for both buyer & seller have an accountant to verify information.

 

 Seller Financing

The seller sets the price and buyer sets the terms.   Approximately 70 percent of all small businesses sold include seller financing. Most buyers will not want to commit to pay the full price up front.   One of a buyer's principal objectives is to obtain the highest return on his or her down payment (return on investment) possible by leveraging his investment. The more a seller is willing to carry back or hold in a note, the more attractive that investment will appear to a buyer. The seller should be prepared to carry back from 20-50% with terms that the buyer can afford from the business cash flow. This is particularly important where there is high cash in the business.

 

Banks

Banks and other lending agencies provide "unsecured" loans commensurate with the cash available for servicing the debt. Banks and other lenders of this type will secure their loans if the collateral exists. These loans are also easier to come by if the buyer is already a favored customer or one qualifying for the SBA loan program. These banks will typically finance 50 to 75 percent of the real estate value, 75 to 90 percent of new equipment value, or 50 percent of inventory.  The only intangible assets attractive to banks are accounts receivable, which they will finance, from 80 to 90 percent. The bank will use the Tax Returns for committing to loans and do not add back what is not in the returns as does the SBA.

 

SBA

The SBA is the Small Business Administration Loan Guarantee Program; loans have long amortization periods (ten years), and up to 70 percent financing (more than usually available with the seller-financed sale). It does not fund the money only guarantee the money from one of its participating banks. Contact us for their loan packages. Typically, it will require that the buyer and seller both contribute to the financing.