business financing
getting the financing you need
There are a number of ways to use financing to acquire the business.From the buyers point of view, you are looking to protect your investment and mitigate the risk.
So most financing arrangements becomes a negotiation process that meets in the middle that satisfies the buyer and seller objectives. These negotiation points include the following:
- An upfront down payment:
the seller will require a down payment as a sign of "invested interest".
The percentage down usually starts at 20% or more. Again every buy negotiation is different. But be prepared to pony up at least 25% of the negotiated sales price.
- Earn-Out Provisions:
many buyers will ask for some earn-out provisions that pay the remaining due amount of the negotiated sales price. This forces the seller to be engaged in the transition for an extended period of time.
Sellers don't like these provisions, but you may negotiate it as part of the closing if you feel the seller engagement will help mitigate the transition risk. As a negotiation tactic, offer the seller earn-out provisions that include salary and bonus payments if the numbers exceed forecasts.
- Seller Financing:
negotiate with the seller some form of seller financing as part of the earn-out provision. This involves the seller to finance some or all of the remaining amount required for the acqusition.
Sellers will negotiate the seller financing terms that has a rate, repayment period, and penalty clauses that allow the seller to take back the business in the event the buyer fails (or appears to fail) to make payment. These negotiations can be complicated and require legal counsel to finalize the financing terms.
- Lender Financing:
lenders will extend capital to acquire a business. Most of these transactions are SBA loans for individual buyers; credit lines for established businesses. The buyer (and the business projections) will need to prove their credit worthiness.
Almost all SBA deals require a buyer's down payment. Some SBAs deals may also require seller financing. For example, lenders may lend at 40% - the buyer puts down 25% - and the seller finances at 35%.
Again, a number of these financing options can be negotiated to make it a win-win strategy. Our role is to protect your interest and ensure you get the best perceived value upon successful closing of the business.
The Novars Group
571-306-3590or e-mail your questions to: info@novarsgroup.com
Lending Financing
If you found the right business, let us help you arrange the necessary financing.
We have aligned with a number of business lenders who are ready to review your business financing needs. We can provide the necessary documentation you need to address the lender requirements.
Business Buying Services
