Buying a Business - Understanding Small Business Financing

As a broker, I often come to discuss with clients and potential buyers of small business financing methods. Once a buyer and seller agree on price and terms, it boils down to due diligence and financing.

A lot of factors can determine how lenders view your business. Depend on the type of provider, type of activity, and what kind of activities does your business that can be used as collateral. There is real estate involved in the transaction?

A commercial banker or loan broker will show you what factors matter most and get your deal financed with their products.

Cash and Assets

Of course, if you are paying all cash, none of this is your concern, but monetary donations to 100% are not the norm.

Every business is unique and different, but one thing is for sure, before you seriously consider pursuing a business for sale, is one of your partners will need enough working capital or equity for anyone to finance your deal.

Financing Bank

The stories of a "No Money Down" offers seller financing and 90% are rare and have never personally seen one that was legitimate.

Again, depending on various factors, when buying the financing of small businesses through a commercial lender, there's a good chance you will need 20-40% cash / equity down on business, finance the balance with debt capital.

You will probably pay "prime + 2" of interest, ie if the prime rate is 8%, your interest will probably pay 10%.

The loan will probably be 5-10 years. Many of the commercial loans that I have seen 7 year terms.

Business with real estate

If you are buying property in addition to the business, many products are available as "blended funding". These loans are "blended" with the standard "real loan" (10% down, 30 years).

You end up with about a 15% deposit, and a period of 18 to 22 years, which is great for keeping the debt service down and increase your cash flow.

On the other hand, 15% of businesses and real estate can still be a substantial down payment.

The cost of the "blended loan" will likely be more favorable with the property as collateral.

Seller Financing

Society of smaller and medium involve a portion of seller financing.

It is appropriate to amortize the funding for a period of time and which have a balloon after 2 or 3 years.

In this way the funding serves two purposes: Funds and the deal shows that the seller has confidence in the business - and the buyer .......