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re: Buying an existing business with no collateral other than the business itself.
Posted on 1/17/17 at 11:32 am to wallowinit
Posted on 1/17/17 at 11:32 am to wallowinit
look into an SBA 7a loan depending on the collateral value vs the purchase price
1
Posted on 1/17/17 at 10:03 pm to Hermit Crab
Would you elaborate on that point?
Posted on 1/19/17 at 10:14 am to wallowinit
My guess on what he is trying to say is this:
Let's say the loan requires 25% down.
The real estate value is $1,000,000, but you are buying it for $750,000.
In this scenario, the equity you have in the real estate covers your 25% down payment, so no out of pocket cash from you is required.
I have seen this done for real estate loans (only in refi situations), but not for business acquisition loans. Of course, there are many banks out there that are very aggressive in their interpretation of SBA guidelines, and there is a slim chance that you can get this done. But, be careful, aggressive banks, can often get you an internal approval, but once SBA reviews the bank's approval, you may never get to closing.
If you attempt to take this route, I would suggest finding a loan broker that specializes in SBA loans. It will cost you a few extra bucks (sometimes they get their fee from the bank, so it may not), but that person will be familiar with what banks are willing to be more aggressive (and get deals to close) and you will not have to waste time going to each and every bank yourself.
I would once again tell you that it is indeed a very rare occurrence when a business will sell an entity or real estate below market value. There is probably a good reason the price is where it is, and any good underwriter will find out.
A short personal story would be a very good friend of mine is purchasing a business from his father in law. Father in law is helping with owner financing, but is not giving him a break on the selling price. So father in law is basically not giving a break to his own daughter. Think about that for a minute, his own daughter.
Good business people simply do not sell for less than what they have earned. But, some good business people make up nice stories and sell for much more than something is worth. Be very careful. Good luck.
Let's say the loan requires 25% down.
The real estate value is $1,000,000, but you are buying it for $750,000.
In this scenario, the equity you have in the real estate covers your 25% down payment, so no out of pocket cash from you is required.
I have seen this done for real estate loans (only in refi situations), but not for business acquisition loans. Of course, there are many banks out there that are very aggressive in their interpretation of SBA guidelines, and there is a slim chance that you can get this done. But, be careful, aggressive banks, can often get you an internal approval, but once SBA reviews the bank's approval, you may never get to closing.
If you attempt to take this route, I would suggest finding a loan broker that specializes in SBA loans. It will cost you a few extra bucks (sometimes they get their fee from the bank, so it may not), but that person will be familiar with what banks are willing to be more aggressive (and get deals to close) and you will not have to waste time going to each and every bank yourself.
I would once again tell you that it is indeed a very rare occurrence when a business will sell an entity or real estate below market value. There is probably a good reason the price is where it is, and any good underwriter will find out.
A short personal story would be a very good friend of mine is purchasing a business from his father in law. Father in law is helping with owner financing, but is not giving him a break on the selling price. So father in law is basically not giving a break to his own daughter. Think about that for a minute, his own daughter.
Good business people simply do not sell for less than what they have earned. But, some good business people make up nice stories and sell for much more than something is worth. Be very careful. Good luck.
This post was edited on 1/19/17 at 10:21 am
Posted on 1/19/17 at 7:13 pm to wallowinit
Of course you can borrow against a business's assets and yes you can borrow against things like inventory and accounts receivable.
You need to "interview" the banks you want to finance it first. While building my business I used to get so discouraged when banks said no. As I gained experience I realized banks tend to specialize in certain kinds of loans.
You are not going to get a bank that does not do business loans on inventory heavy business to loan on inventory for example.
What kind of business are you trying to buy?
You need to "interview" the banks you want to finance it first. While building my business I used to get so discouraged when banks said no. As I gained experience I realized banks tend to specialize in certain kinds of loans.
You are not going to get a bank that does not do business loans on inventory heavy business to loan on inventory for example.
What kind of business are you trying to buy?
This post was edited on 1/21/17 at 10:18 am
Posted on 1/20/17 at 6:51 am to I B Freeman
OP, why are they offering you a deal? I 100% agree businesses don't give parts of business away. If for some reason offering it to you saves money over putting it up for sale I can see that, but seems unlikely financially?
Posted on 1/20/17 at 9:41 am to 6R12
quote:This was my experience.
Not trying to be silly but it don't work that way. Lending loves to see you invest in your own idea/risk.
I had a very immature idea about how I would present a plan, show how cash would flow, and they would just give me a big ol loan
In my experience it was all about collateral, either thru the business or personal. I just put a big load of cash in the bank to operate off of, and financed all equipment and property for now. We are showing a positive cash flow, I met with bank this week about some needs we have on the horizon and they are now much more friendly with the lending.
I took them in the balance sheet, they verified it with bank deposits and expenitures...all matched up and it was a much nice conversation. Not just giving it away, but at least I have some options.
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