When you have finally located the business you want to acquire, the remaining steps are to agree on the price and terms and of course, financing the deal.
There aren’t that many buyers who are able to pay all cash at closing. Every deal will vary somewhat and usually contain components of the following;
- Buyer equity
- Seller financing
- Guaranteed loan from SBA
It is not unusual for the buyer to ask for seller financing for smaller deals. Especially for deals with a higher risk level, the buyer will want the seller to have some skin in the game. Remember, everything is negotiable. Of course, the seller may have doubts about holding the paper but sometimes it’s the only way to get a deal done. If seller financing is included along with bank financing, you will need to get agreement by the main lender on the terms of repayment to the seller. Some lenders want to be paid first before the seller gets paid on his note.
Conventional loans are not the norm with small business acquisitions but fortunately, the Small Business Administration (“SBA”) has the ability to underwrite most acquisition loans. See more tips on SBA here How to Finance an Acquisition Using an SBA Loan | Entrepreneur .
Note that the SBA does not lend directly, instead, a bank or other financial institution will originate and perform underwriting and receive the guarantee by the SBA in case there is a default. There are out-of-pocket costs with the SBA so before going down this route, ask your lender about the related up-front fees. Often, the fees can be rolled into the loan and paid over 10 years. We work with many SBA lenders and can offer referrals if needed.
Don’t let the lack of capital hold you back. There are plenty of ways to be creative and finance your business acquisition. Ask how we can help.
