Borrowability Can Be the Key to Deciding How to Become an Entrepreneur


In the controversy over how best to get into business ownership--buy an existing enterprise or start from scratch--the most important and most overlooked aspect is whether you can “take it to the bank.”

As people emerge from corporate employment, or from school, looking to be in business for themselves, many wrestle with this question. The benefits of taking over a going concern, including a track record with exiting customers, employees and vendors, plus a known name and instant cash flow, are up against the reasons to launch an enterprise: You don’t have to buy goodwill, and can enjoy the pride of having created a running business from just an idea.

Often forgotten in this debate is that no matter which strategy is pursued, if money is needed to make it work, the far better option is to find a business for sale to purchase. That’s because the entrepreneur planning on finding a suitable business offering has a greater chance of getting the help of a lender, than the person who asks for funding to carry out a business idea.

Here are a few reasons that “borrowability” is greater when an existing business is involved, and suggestions for using the reasons in the campaign to get a business loan.

1. That track record of an established company, even if it isn’t perfect in every respect, will open banker’s doors more readily than an idea about what “could be.”

Suggestion: Borrowers are advised, when requesting financing, to provide a business plan that summarizes the company’s performance during the past few years so any interested loan officer can be satisfied that the enterprise is equipped to keep clients, manage expenses and show a return.

2. Expectations for the future are the companion to the track record.  The would-be borrower stands little chance of getting funds for a start-up because the business projections are based on the borrower’s speculations. Lenders only survive if they’re very careful to avoid risky propositions. So a loan granted to an owner who can’t rely on past experience to guide the company’s way into the future, often looks, from the viewpoint of a bank, like a gamble.

Suggestion: Any buyer seeking funds to complete a deal should consider how to show prospective lenders that positive trends observable in the company’s recent past will help give direction for the future, and any parts of business that have been a disappointment--income areas with poor results, and expense items that seem too costly--are subject to change going forward.

3.  A common feature in many transactions involving the sale of a small business is seller participation by carrying back part of the purchase price.

The willingness to sell a business by providing financing sends a signal as clear as a green light for other lenders to proceed. It’s reassuring for the loan officer to notice that the person who knows most about the business is staking money on the buyer’s chances for success.

The start-up operator has no similar way to demonstrate to prospective sources of borrowed funds that their decision to participate probably involves little risk.

Suggestion: Here’s a negotiating point when persuading a seller to help finance: Such a demonstration of faith in the buyer will increase the likelihood that another lender will be ready to provide the cash needed to complete the deal.

Future business owners not sure whether to pursue a start-from-scratch plan or buy a business, ought to give serious consideration to the “borrowability” factor.
 

 

About The Author - Peter Siegel is the founder and President of BizBen.com - Businesses For Sale In California. A nationally recognized author (3 books and a syndicated small business blog) and expert consultant. If you are selling a business and need professional assistance utilizing high performance advertising, marketing, and highly effective strategies, or individual customization with your BizBen Power Search options in buying a California business, you can reach him at 925-785-3118.

Categories: BizBen Blog Contributor, How To Buy A Business


Comments Regarding This Blog Post


Buying an existing business is typically less expensive, because the location already has some foot traffic, especially if it is a restaurant and the new owner is looking to convert to another food type. Starting a business from scratch, say a restaurant, can be very expensive from a vanilla shell, and would probably cost around 250K minimum, to get the business off the ground, and then one has to take a loss every month until they get the business up and running, and usually those who sell, never get their full investment back.






  Helpful Resources To Assist In Selling And Buying California Businesses
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.

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.

Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

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.

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.

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.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Thinking Of Selling My Business: What Factors Create Value And Drive Price?

There are a lot of misconceptions about what enhances the value of a business. The following factors in this Discussion Post on BizBen are aspects of a business that really drives its value and pricing. Business owners thinking of selling should check these out these factors before selling.

Sellers Ask: How Long Should I Wait For The Buyer To Do Their Due Diligence?

Business sellers & buyers ask the question in the buying process-how long should I ask for due-diligence when buying a small business? The answer really depends on several factors. They include: type of business, demand for the business, complexity of the business. Advisors weigh in on this topic.

Back-Up Offers: Crucial When Buying Or Selling A California Small Business

An often overlooked aspect of selling (or buying) a small business is taking back-up offers during the entire process of selling (or buying) a business. Most sellers (or buyers) don't realize that over fifty percent of all deals/contracts fall out escrow or contract for one reason or another.

Find Out Why 80% Of California Business Buyers Never Find And Buy A Business

First the dreaded statistic: 80% of all CA business buyers looking to buy a business in California never end up doing so! Peter Siegel, MBA BizBen.com Founder & ProBuy Director) covers successful tactics & strategies all business buyers of California small to mid-sized businesses should utilize now.

Unreported Income: Should Sellers Disclose Unreported Cash To Buyers?

Should owners who offer a business for sale reveal to prospective buyers any income that is not recorded in the books? This is a controversial topic with arguments both for and against. Most business sales intermediaries believe if you don't pay tax on it, you can't claim it. Some sellers disagree.

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.

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.

Confidentiality: Why Keeping A Deal Quiet Is Important To Sellers And Buyers

Owners should keep the fact that they want to sell their small business confidential. Before releasing information to prospective buyers, buyers should commit to confidentiality in writing & should understand why it is important. Peter Siegel, MBA a ProBuy and ProSell Advisor with BizBen explains.


Escrow Services Diane Boudreau-Tschetter
Cheryl Maloney Restaurant Broker San Francisco
Julieanna Wakileh Preschool Broker
Michael Brewer, ABC License Consultant
Facebook
Twitter
Linkedin
Vlogs and Podcasts
Advertise On BizBen
New Postings Reports On BizBen Sign Up
BizBen Blogs And Articles
BizBen ProSell Program
Business For Sale California Stats
California Educational Events Buying And Selling Businesses

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!
What Is The Typical Business Broker Fee For Sellers And Buyers? Who Pays...
Read More News
Financing Advice: Showing Add Backs To Get Business Acquisition Financin...
Read More News