Jason Horwitz, and JH Business Advisors, have established relationships with many local banks, many of whom are preferred lenders, who pre-approve majority of our listings, for SBA Loans. Beyond bank financing, we encourage our seller to consider seller-financing on a case-by-case basis.
OUTSIDE LENDING/SBA LOANS
A very important step in most transactions is helping the buyer obtaining financing to complete the transaction, which helps you get the maximum amount of money at the closing. We work with several lenders that will want to support your buyer and get you your money.
In Las Vegas, there are a select few folks we like to use. More often than not, we will send out financial information and data, to a local underwriter, to receive pre-approval for an SBA Loan on the business we have for sale. This is a strong selling point, given that generally, only a 20% down payment would be required to buy the business, assuming the buyer himself qualifies for the loan.
SELLER FINANCING
Seller financing is involved in up to 90 percent of small business sales and more than half of mid-size sales. If you’re not willing to finance at least some of the price, and your records aren’t such that the business would pre-qualify under strict banking guidelines, you may have a hard time selling your company.
In most cases, the buyer’s ability to make the payments will depend on the future success of the business, yet your buyer may know little about your company, your customers, or even your industry. The buyer can mismanage your company down to nothing very quickly, if you don’t keep an eye on him. If the buyer runs stranded and stops making payments, your only real recourse may be to foreclose on the note and repossess the business, but that means you’ll have to find another buyer and start all over again. This is not how we do things.
WE DO THINGS MUCH DIFFERENTLY…
When we speak about seller carry, we speak about a secured promissory note, whereby outside collateral is pledged. Unless there is substantial real property, or assets, which will be in first position to collateralize, we do not advise our sellers to accept the note. After all, we are not protecting our clients best interest if we allow for a seller-carry note, whereby the business itself is collateral, but no outside assets are available to pledge. We also advise you require the buyer to personally guarantee the loan, just as a commercial lender would. And, of course, you’ll want to carefully check out the buyer’s background, including credit record, management experience, personal assets, and character, just as the buyer will check you out during the due diligence phase of negotiations.
COMMON FORMS OF SELLER-FINANCING
The simplest way to provide seller financing is to have the buyer make a down payment, with you taking a note or mortgage for the rest of the purchase price. The business itself, and/or the significant business assets, provides PARTIAL collateral for the note. A lien on the property is filed with the secretary of state’s office, so the world at large knows that it is present. If the buyer defaults on the note, you’ll be in first position to step back in and take over the business. Beyond this, and as previously noted, our clients at JH Business Advisors will never advise you to take the business as collateral, without substantial outside collateral/equity, in one form or another.
In addition to its simplicity, seller-financing can allow for much more than standard bank financing. You can adjust the payment schedule, interest rate, loan period, or any other terms to reflect your needs and the buyer’s financial situation. For example, you can provide for a loan amortized over 10 years, with a balloon payment at 3. What this does, is allow for a small payment, thus taking full advantage of the company’s current profit situation, and allowing for you to build the business in a way where you could take a loan out, from a financial institution, after the 3 years — To pay off the balloon. The idea behind this is that at that point, after 3 years, the business will be on a solid footing, the business owner will have the experience fulfillment they may not have previously had, and bank financing will be easier to find.
There are many ways to structure financing, and not everyone has the cash to buy a business in full. The good news is, if done right, sellers have the option to get their business pre-qualified for an SBA loan OR they’re given the ability to cash out twice — All while minimizing their risk and allowing for their buyer pool to increase exponentially.
To get your business pre-approved for financing, or to speak to us about many of the opportunities we have, either SBA pre-qualified, or where seller-carry is available, please contact us!