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Financing The Business Acquisition

Corporate downsizing in the U.S. has made owning a business a more attractive proposition than ever before. As increasing numbers of prospective buyers embark on the process of becoming independent business owners, many of them voice a common concern: How do I finance the business acquisition?

Prospective buyers are aware that tighter credit restrictions greatly prevent the traditional lending institution from being the likely solution to their needs. Where then, can buyers turn for help with what is likely to be the largest single investment of their lives? There are a variety of financing sources, and buyers can find one that fills their particular requirements. (Small businesses--those priced under $100,000 to $150,000--will usually depend on seller financing as the chief source.) For many businesses, the following are the best routes to follow:

Buyer's Personal Equity

In most business acquisition situations, this is the place to begin. Typically, anywhere from 20 to 50 percent of cash needed to purchase a business comes from the buyer and his or her family. Buyers should decide how much capital they are able to risk, and the actual amount will vary, of course, depending on the specific business and the terms of the sale. But, on average, a buyer should be prepared to come up with something between $25,000 and $150,000 for main street businesses. One of the major reasons personal equity financing is a good starting point is that buyers who invest their own capital start the ball rolling--they are positively influencing other possible investors or lenders to participate.

Seller Financing

One of the simplest--and best--ways to finance the acquisition of a business is to work hand-in-hand with the seller. The seller’s willingness to participate will be influenced by his or her own risk tolerance, tax considerations, cash needs and comfort with the buyers ability to successfully operate the business.

Small Business Administration

Thanks to the U.S. Small Business Administration Loan Guarantee Program, favorable financing terms are available to business buyers. Similar to the terms of typical seller financing, SBA loans have long amortization periods (ten years), and up to 70 percent financing (more than usually available with the seller-financed sale).

Lending Institutions

Banks and other lending agencies provide unsecured loans commensurate with the cash available for servicing the debt. ("Unsecured" is a misleading term, because banks and other lenders of this type will aim to secure their loans if the collateral exists.) Those seeking bank loans will have more success if they have a large net worth, liquid assets, or reliable sources of income outside of the targeted business. Unsecured loans are also easier to come by if the buyer is already a favored bank customer or one qualifying for the SBA loan program.

For more information, please contact us.

We are Phoenix, Arizona business brokers who can assist you in selling a business, buying a business, selling a company or buying a company throughout Maricopa County in cities that include Scottsdale, Phoenix, Chandler, Gilbert, Tempe, Mesa, Paradise Valley, Peoria, Glendale and Ahwatukee, Arizona. If you are considering selling your Arizona business, company or you are interested in Arizona businesses for sale, please contact our expert Scottsdale business brokers and we will help you to buy or sell a company or business.

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