Many Methods Many Approachs A Key Part to the Deal Structure!

In the world of small business sales, the ability to secure financing is extreamly important!

- The Seller must either manage his/her business so that outside financing is available, or, the Seller must be willing to provide financing to the buyer.

- In turn, the Buyer must have the financial strength (personal financial statement), the credit worthiness and the experience to successfully run the business.

The actual financial structure of a business transaction is customized to the requirements of the Seller, the Buyer and any third party lenders or investors. Key metrics involved in obtaining financing are proven cash flow, 3rd party valuations of the business, and more importantly, and the Buyers ability to make payments (personal financial statements and debt coverage ratio)!

In general, the typical business transaction involves the following elements:

Buyers Cash Typically 20% to 50% of the purchase price comes from the Buyer. The Seller and/or bank are usually unwilling to finance any portion of the purchase if the Buyers commitment is not significant. The Buyer must also consider reserves to be used for operating capital and collateral to support the debt.

Seller Financing Seller financing to qualified Buyers is common in the acquisition of closely held corporations. Seller financing is a vote of confidence to both the Buyer and any financing institution that is involved.

If the Seller finances the transaction, the down payment typically ranges from 25% to 50%. The terms of the Seller carried portion of the purchase price are fully negotiable.

Institutional Financing If Small Business Administration (SBA) financing is available, a Buyer can anticipate a 10% - 20% down payment (of the total package purchase price/closing costs/working capital - sometimes working capital is borrowed as well) and the balance is amortized over 10 years at a variable rate of prime plus 2.0% to 2.5%. A down side to SBA financing however, is that the deal terms are more restictive and it typically adds approximately 45 to 60 days to the entire process. Sunbelt can assist in securing outside financing for business acquisition.

NOTE:When institutions finance a portion of a sale, any note held by the Seller is always in a second position, often unsecured and often interest-only or delayed-payment for a set period.