When buying or selling a business a crucial element of the sale or acquisition of the business is the financial structure of the business sale. We have always maintained that the day a broker takes a business listing the determination as to whether or not the business sells is how the business is to be financed. It is very easy to list a business for a cash purchase but the reality is that without financing that business has a minimal chance of selling. Like in purchasing a home, a buyer wants to get the most leverage out of his money. He will also need additional funds for closing costs and most importantly for operating capital. The main reason for business failures is under capitalization. Proper financial structure can help end this problem and give the buyer a much better chance of not only surviving in the business venture but also to prosper in it.
Most businesses are financed in one or two manners:
- Seller financing: Almost 80 % of businesses sold in the United States are financed partially by the business seller. This allows a structured payment plan to the seller after an initial down payment by the buyer. Generally the loans are for 5 or more years. Longer payouts that have a balloon payment after a few years are often very feasible. In today’s market interest rates on seller financing are higher than the seller can obtain by putting his money into a bank. The seller can also have tax benefits with deferred payments as opposed to taking all of his cash at closing. Various methods can be taken to help the seller secure the loan.
- SBA Financing: The Small Business Administration has been a valuable source of business financing for decades. While some businesses are not eligible for an SBA Loan, many are. Although the recent economic events have curtailed the availability of some SBA Loans they are still a viable financing source for many businesses. Corporate Investment Business Brokers have several excellent banking sources that can help buyers obtain SBA Loans.
The professionals at Corporate Investment Business Brokers have been helping buyers and sellers structure business acquisitions and sales since 1986. Let our knowledge help your business sale or purchase be a success.