Financing - The Business Broker

Category: Financing

Financing

It's Our Job to Set the Seller's Expectations in Line With Reality

It was not all that long ago, perhaps only 3 or 4 years ago when in every deal we did it seemed to be easy to get an SBA loan. The lenders were competing for loans and sometimes we would see a buyer walk away from closing with a loan for 80% of purchase price and working capital in excess of the down payment. Sometimes they virtually had "no skin in the game". Boy have things changed.

As we all know that is not the case anymore. While lenders are beginning to make loans again,...

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Posted on 5/1/2012 9:39 AM By Roger Murphy
In: [Financing] | No Comments »

Total Seller Consideration

*CORRECTION*

This article was originally posted with the numbers in the chart lined up incorrectly. Thankfully, Len notified us that we had not displayed his information accurately. Please note the corrected chart and we apologize for this error.

Some of you may already be doing this, but I have started adding a standard extra page to the “Seller Carry” version of a valuation. This is only for the purpose of “selling” the idea of Seller Carry to my Client Prospect.

Below you will find an example for a large company I am about to list (I hope).

There are two objectives:

1. To show them how much more they will receive from the sale if they carry a note. Notice that these sellers would earn another $59,188 in interest
2. To get them used to the idea that our commission is coming out of the cash at closing. Note that, after interest, they would receive 96.3% of the purchase price.

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Posted on 10/7/2011 8:03 AM By Len Krick
In: [Financing], [Working With Sellers] | No Comments »

Financing the Small Business (Part 3 of 3)

Where is the SBA Going?

For those business brokers who don’t understand seller financing and remain dependent on SBA financing, continue reading. The “Great Recession” may very well change the rules of selling businesses.

“Conclusions -- The SBA retains political support because it is a tool for policymakers to signal their support of small businesses. At the same time, SBA supporters have cultivated a myth that being against the agency is equivalent to being against small businesses. In reality, the great majority of American small businesses have thrived without government subsidies. The SBA's lending programs benefit a relatively tiny number of businesses at the expense of taxpayers and the vast majority of businesses that do not receive government support. Even though there are no substantial economic benefits of the SBA, the agency has remained politically entrenched. It gains particularly powerful support from the banking industry. However, with today's huge federal deficits, policymakers should begin eliminating unneeded business subsidies in the budget, including SBA spending.”

Source: “Terminating the Small Business Administration” by Veronique de Rugy and Tad DeHaven

Most people agree that small business is important in the growth of the US economy and the increase in jobs. However, a very recent survey in the Rasmussen Report reported that 58 percent of likely voters do not believe that the federal government should provide loan guarantees to lend money to someone looking to finance a business. Many people (47 percent) still think that most small businesses get started (or purchased) with bank loans. Business brokers know differently.

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Posted on 8/25/2011 9:25 AM By Tom West
In: [Financing] | No Comments »

Financing the Small Business (Part 2 of 3)

Yesterday's posting addressed how financing is a major issue in the sale of businesses today and yet how the source of financing that has effectively dried up didn't even exist not so many years ago.

So, where does that leave us?

If you don’t know what seller financing is, read on. If you think SBA loans will come back, read on. It used to be, and it is now, that if the seller really wants to sell, he or she is going to finance the sale. There is no outside money and the sooner you can get the small business owner to accept this, the sooner a lot more deals will be made. Sellers may not like it, but if they are serious about selling, the sooner their business will sell.

The buyer will have to come up with 30 to 40 percent as a down payment. The seller will carry the balance on terms that make sense for both. After making the payment to the seller and paying the costs of doing business, there has to be sufficient funds for the owner to feed his family. The ROI is what the new owner receives when he sells it.

The trade-off for both is...

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Posted on 8/24/2011 2:00 PM By Tom West
In: [Financing] | No Comments »

Financing the Small Business (Part 1 of 3)

There are two questions on our latest survey having to do with financing the sale of a business. They are as follows:

Q. What do you think were the biggest reasons for the decline in number of deals, sales, dollar volume, etc.?
(The state of the economy is a given.)
A. #1 = Lack of financing

Q. What was the main obstacle that caused pending sales from closing?
A. Financing 44%

The responses to the above questions should leave no doubt that financing is a major reason, if not the main reason, that more deals are not made. Now I realize that the term outside financing as opposed to seller financing is not mentioned. My guess is that seller financing is not an issue or a reason for very many sales not closing.

What is left is bank and SBA financing. I have written about this before, but I’m still not sure where the issue of financing began. It was never an issue years ago. Banks never did finance the sale of small businesses. Sure, there were some exceptions. Experienced buyers could borrow to buy a second unit, or if they had bank connections, they could get financing to purchase a business. But, well over 90 percent of small business sales were financed by the seller. The SBA, although it existed, really played no part in lending or guaranteeing business loans from other sources.

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Posted on 8/23/2011 9:05 PM By Tom West
In: [Financing] | No Comments »

Business Brokers Must Adapt to Survive the Nation’s Long-Term Small Business Credit Crisis

“For mankind and animals alike, it is not the strongest who survive, nor the most intelligent, but the one who best adapts to change." – Charles Darwin

I was honored to be one of the 200 or so people invited by the International Franchise Association (IFA) to attend their April 7, 2011 Small Business Finance Summit. This event was co-produced by Consumer Bankers Association, the National Association of Government Guaranteed Lenders, and the National Restaurant association. The purpose of this Summit – and its follow-up working group – was to start collaboration between government, bank lenders, and small business advocacy groups, searching for new and better ways to improve credit access and thereby spur business growth nationwide.

By no means was this event limited to focusing on the multi-billion dollar franchising industry, where I have served as an in house attorney (e.g., McDonald’s Corporation, UPS) for 22 years. During this event, we examined the nation’s ongoing small business credit crisis under a microscope...

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Posted on 6/27/2011 2:57 PM By Richard L. Kolman
In: [Financing] | No Comments »