Business Purchase Financing
Although Business financing options are minimal, the important thing to know is that you have options. Here are the main ones used in South Florida:
Some South Florida business buyers have the cash available to purchase a local business. Some local buyers may elect to use equity in their home or other real estate assets to sell or borrow against.
Lenders may extend loans against a business buyer’s assets as described above, or they may lend against the assets of the business being purchased in South Florida, providing there is sufficient value to support the loan.
The business itself will also have to make economical sense to the bank, regardless of the value of its assets. In the opinion of lending institutions, the current business owner who is selling the business often fudges the figures and those numbers end up having very little to do with the actual earnings power of their business.
Venture Capital Firms:
Venture Capital Firms do not typically lend to small or even most middle businesses unless the anticipation of tremendous growth can be shown. When venture capital firms do lend money for a business purchase, they expect an equity position in the business.
The United States Small Business Administration (SBA) has been around since the 50’s. The 7a SBA program provides financing for business purchases or acquisitions. The SBA allows lenders to offer more favorable terms as well.
In fact, some lenders offer terms of up to 10 years with no balloon payment and no prepayment penalties on small business purchases. In addition, financing repayment terms can be even longer than 10 years if the building and/or land that houses the business in included in the purchase agreement.
The SBA has become more popular than ever in recent years. There is now some competition among lenders for SBA loans. Many lenders offer SBA financing, but preferred SBA lenders, lenders recommended by the SBA, seem to have the upper-hand in both acceptance and service.
This category includes family, friends. credit cards, and leasing companies. Some credit suppliers have been known to assist in the purchasing of a small business.
Seller financing is, by far, the largest and least risky way to purchase a business in South Florida. When a seller agrees to finance the majority of the price, buyers have much more confidence in the decision to purchase the business. Seller financing gives the buyer confidence that the seller believes the business will service the debt, in addition to providing regular wages to cover living expenses.