We’ve found that…
Getting funding to buy an existing business is hard. Lenders will put the prospective buyer and the target company through a rigorous examination. They’ll look closely at everything for any potential risks – the buyer’s track record, his or her future plans for the target, and the target’s recent performance. A new owner will always find it harder to borrow than the seller did, even though the business may have a strong track record. As small business financing remains tight, financing business acquisitions is particularly tough.
EquityNet will work with you to overcome the financing obstacles to buying an existing business.
The way forward
I’d recommend you use seller financing to complete your acquisition. Using seller financing, you can bolster your financial capacity to acquire.
In a seller financing deal, the seller becomes the lender. You agree to a purchase price with the seller, make a down payment, and pay back the “lender” over time for the balance of the purchase amount. In this structure, you no longer face the hurdle of finding enough money to pay for the whole company upfront.
How it works
- Imagine that a rock climbing company is looking to buy another facility.
- The company could agree to a purchase price of $500 K with the facility’s seller, pay 20% of that as a down payment and then take over the facility.
- From there, the buyer could pay the seller the balance of the purchase amount ($400 K) with interest using the money the new facility makes.
- The acquiring company would not need to use as much of its own money, or an investor’s money, to grow.
Bear in mind…
By giving buyers more flexibility, sellers in seller financing arrangements can sometimes command larger purchase prices.
However, the arrangement will benefit you in many ways:
- The seller needs the money from the sale in order to retire. They’ll only push you so hard.
- Since the seller knows the business best, they won’t need to charge you more interest to make up for a lack of familiarity with the business.
- Seller financing is a signal to other investors that the business will remain stable.
Seller financing can increase your ability to buy a business and grow.
Are you buying a business? We can help. Contact us!