Financing a business purchase, or getting cash for a down payment can take many forms. Hopefully the options listed below will give you some ideas where you can find the money to buy a California small business!
Credit Cards - any buyers these days are tapping their credit cards for their down payment to buy a business. The downside of this option is that if you are getting an SBA loan to buy a business, they won’t let you use “a credit card/loan - borrowed money” for the down payment. Other than that this option works for many since there is no waiting for the money or cumbersome approval process.
SBA Loans - Businesses can also be purchased with 7(a) SBA loans. There are conditions however in getting one to buy a business. You still have to put down between 20%-30% depending on the lender, you must have good to excellent credit, and the business has to have PROVABLE cash flow to support the debt service of the loan. The loans are typically 10 years in duration and the loan interest rate tend to be 2-2.75 points above the prime interest rate. Assistance in obtaining an SBA loan is encouraged due to the complexities that can be involved in obtaining one for buying a business.
Home Equity - With home equity not where it once was in California many potential buyers of small businesses are not able to tap this form of financing. If you are able to borrow against your home equity it is a good idea to plan ahead before you get to the offer stage since the approval process can take some time.
Owner Financing - This is the most common form of financing. Usually the buyer will put down 20% - 50% (utilizing one of the methods above), and the owner will carry back a note for a duration of usually two to ten years. Interest rates vary but they usually will be higher than banks or commercial resources. Sometime there will be "combo" financing with the owner taking back a partial note and the rest of the financing will come from the above resources.
Retirement Plans - Many buyers have built up sizeable amounts in their work 401(k) plans. There is a way to tap this money tax free - put it into a "special trust" that then buys the business for you. Many corporate refuges/individuals coming out of corporate America are going this route.
Note Buy Out Firms - There are companies and individuals who buy notes sellers have taken back. Get your possible deal in front of these individuals to see if they would be interested in buying out the note after you have completed the deal - this may sway some sellers who want all cash for their deal and don’t know about this creative financing option!
They key to all this is to be creative - possible tapping several of these sources to get your deal done. With all these resources along with cash in the bank and possible some relatives who may want to invest in your new business - you should have no problems with the financing end of buying a business!
About The Author: Peter Siegel, MBA is the Founder of BizBen.com and the Director of the BizBen Network. A recognized author (3 books and a syndicated small business blog) and expert consultant on selling and buying California small businesses, he provides phone counseling to potential business buyers, business brokers, agents, and small business owners. Peter Siegel can be reached at 925-785-3118.
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Laundry consulting, due diligence, buyer representation: We preview laundries for you and evaluate them. 28 years laundry industry experience: buying, selling, valuing, retooling, analyzing, consulting services for laundry buyers and entrepreneurs in California. Contact us today about our services.
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The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups.
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Laundry consulting, due diligence, buyer representation: We preview laundries for you and evaluate them. 28 years laundry industry experience: buying, selling, valuing, retooling, analyzing, consulting services for laundry buyers and entrepreneurs in California. Contact us today about our services.
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Cheryl's a restaurant business broker, over 25 years in the bar and restaurant industry coupled with a J.D. Cheryl works tirelessly to create successful strategies and effective negotiations for those who wish to purchase a new or sell an existing bar, restaurant, cafe, or night club. 415-309-2722
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If your business involves alcoholic beverage sales, we can help. Obtaining a liquor license transfer or selling a business with a license in California does not have to be a frustrating and overwhelming process. We have procured thousands of licenses for our clients.
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McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
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