Tips And Ideas For Financing A California Business Purchase


Financing A California Business Purchase

Anyone interested in financing a business purchase in the past year or so knows how difficult it can be to accomplish that objective. The problems that hit the banking industry with the mortgage meltdown starting in 2007 have made most loan officers very cautious about lending to entrepreneurs wanting to buy small or mid-sized businesses for sale in California. And the impact has been experienced in a slower rate of business transfers over the past couple of years.

But resourceful California entrepreneurs are not waiting for a return to the old days when lenders were more eager to cooperate, and there was plenty of home equity to use as additional collateral. They are pursuing other avenues to get the cash needed to conclude their transactions.

Two of the most widely used strategies are:

1. Increased use of seller financing. The number of sellers insisting on all-cash deals has declined over the past year or so. Business owners ready to retire or move on to another enterprise are discovering it may take a very long time to find a buyer willing and able to comply with that difficult requirement. And most likely, the buyer able to cash out the seller will insist on a substantial price discount.

Along with the change of heart among sellers about helping to finance, now that bank loans aren't as easy to come by, is an increase in the amounts that finance-willing sellers are agreeing to lend, as a percentage of the total price.  The amount of seller loans, which averaged one-fifth to one-third of the total price up until about two years ago, is now in the 25% to 40% range. Sellers may not like the idea of getting less money at close of escrow than did the entrepreneurs who sold before the financial crisis. But increasing their assistance to a buyer who is financing a business purchase, may mean the difference between selling and not selling a business.

2. Smarter loan applications. And the difference for the buyer, between making and not making a purchase, can depend on how well a loan application is prepared. The SBA has been working hard, and getting some Congressional support, to persuade its preferred lenders to offer SBA loan programs to small business owners who want to expand, or entrepreneurs who want to purchase a small business.
   
Even with some purchase money available through these programs, the challenge is getting your application accepted by a lender. Responding to that challenge, and with the aid of smart California loan brokers who specialize in working with the SBA programs, applicants are getting better at submitting applications that get the stamp of approval.

For one thing, buyers know they're much more likely to get purchase money funds when their background matches the industry in which the business is involved. SBA loan backed lenders take their cue from the federal agency, which strongly favors the idea of business buyers doing exactly what they do best, rather than plunging into unfamiliar waters when they buy a business. The applicant with a retail food service background has a better chance of getting funds to buy a restaurant than does the person whose experience involves industrial engineering. And it's common now for a loan applicant to include a business plan, demonstrating to the lender that the borrower has thought about how to operate the enterprise and to make sure it produces enough cash to repay the loan.

Additionally, many buyers are getting in the habit of pre-qualifying for SBA loan programs, even before a suitable business is found. This approach enables the buyer to learn how much they can borrow and to fine-tune the application for a specific business, once it is identified. Pre-qualification also is a smart negotiating strategy for the person who'll need help financing a business purchase. Once given the general green light by a lender, the buyer usually can expect a fast response when requesting funds for a specific purchase. That means she'll be prepared to proceed with a deal before other potential buyers have made much progress at finding the money--a strong selling point when discussing price and terms with the seller.

While financing a business purchase has become more difficult in the current economic environment, resourceful Californians still are finding ways to access the needed money.

Categories: BizBen Blog Contributor, Business Purchase Financing, How To Buy A Business, Small Business Financing

Contributor:

Peter Siegel, MBA
Areas Served: All Of California
Phone:  925-785-3118 Cell, 925-785-3118 Text
Founder Of BizBen.com (since 1994). I am the Lead Advisor for the ProSell, ProBuy, & ProIntermediary Programs. I consult daily with buyers, sellers, and brokers daily about buying and selling California small to mid-sized businesses. Call 925-785-3118.





  Helpful Resources To Assist In Selling And Buying California Businesses
Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

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.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
How Many Listings Is Too Many For One Broker To Handle? Is It 5? 10? 20?

Peter Siegel, MBA in this Vlog/Podcast discusses how many listings is too many for one business broker to handle at one time. Is it 5 is it 20? I recently had a coaching call with one of my BizBen broker clients who asked that question this week. There are many factors that go into the answer.

Selling My Small Business: What Items Should I Have Ready To Be Successful?

When selling a small to mid-sized business, owners should have their paperwork and financial information ready to go! They should also have a short business plan of past history, current operations, and potential for the future. In this BizBen Discussion several advisors and intermediaries weigh in.

Should A Buyer Be Allowed To Operate A Business Before The Close Of Escrow?

Business buyers, brokers, owner/sellers all ask this question at some point. So I decided to ask some of the top Intermediaries in the California marketplace what they thought of the idea. Most of the ProIntermediaries on BizBen agreed with me on taking early possession before the close of escrow.

Who Really Represents The Business Buyer In A Deal? Does Dual Agency Work?

Who really represents the buyer? The selling broker or agent through dual agency? Many brokers and agents weigh in on this Discussion on BizBen. Bottom line is all business buyers need to know who really represents them and has their best interest at heart when seeking and negotiating on deals.

Financing Advice: Showing Add Backs To Get Business Acquisition Financing

When seeking business acquisition financing, it helps to review a seller's addbacks as a source of funding to service the debt service. But explain them correctly. Peter Siegel, MBA business acquisition financing expert and advisor at 925-785-3118 covers this topic on financing a business purchase.

Absentee Run Businesses - A Myth Or Reality When Buying A Small CA Business?

Buyers search for an absentee business, wanting to collect profits generated by a successful enterprise without having to stand at the sales counter or cash register, without having to cook, operate equipment or talk to customers. Peter Siegel, MBA offers his intake on absentee run businesses.

I am Selling A Small Business - How Do I Qualify Potential Business Buyers?

Being prepared when potential buyers contact you about your business for sale is a good idea. Too many sellers (and brokers) are unprepared & miss good opportunities or get involved with unqualified buyers. This Discussion post and answers from ProIntermediaries on BizBen assist with this issue.

5 Myths About Selling A California Business: Best Tips For Sellers & Brokers

Peter Siegel, MBA (at 925-785-3118) - BizBen Director discusses myths associated with the process of selling a business and some of them can actually cause deals to fall through. Don't let your sale be comprised, be aware of these common misconceptions related to the process of selling a business.


Escrow Services Diane Boudreau-Tschetter
Escrow Town And Country Southern California
Michael Brewer, ABC License Consultant
Chris Lazurik Business Broker
Facebook
Twitter
Linkedin
Vlogs and Podcasts
BizBen ProBuy Program
BizBen ProSell Program
Instant Email Alerts On BizBen
Business For Sale California Stats
BizBen Blogs And Articles

BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2020, All Rights Reserved



Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Considering Hiring A Business Broker? Ask These Questions First, Then De...
Read More News
Coronavirus: Advisors Discuss The Topic - Buying & Selling Small Busines...
Read More News