You Can Buy a Business Without Bank Financing

People wishing to buy a business are often put off by concerns about financing. They don’t have the bucks to pay cash, SBA loans are no longer as available as water at their favorite restaurant, the banks aren’t too friendly in the lending department, the equity in their home has evaporated, and there no rich uncles around to bankroll their dream purchase.

Guess what? People who want to sell their businesses understand that. In fact, a good business broker will explain that very common buyer’s limitation upfront to his seller, before he even lists that business. The business broker will encourage the seller to offer terms-in short, to carry a note for part of the purchase.

And most of them will. I am a business broker in Las Vegas and the thumping majority of my listings have sellers willing to lug some paper on the back end of a sale.

The key to a successful deal is often the nature of the agreement–more particularly, the downpayment and the terms–rather than the selling price. Most people looking to buy a business want to get their downpayment back out of the first year’s profits. Conversely, most people selling their businesses want a downpayment large enough (often around 50%) that the buyer has sunk sufficient cash into the sale to insure that he will do everything possible to keep the business successful enough to pay off the balance. Most deals in which paper is carried accomplish that.

Let’s use an example. Say a service business does a gross of a $140K a year, with a net profit at around $70K. And the seller of the business wants $135K for it. Often the published terms (those stated by the seller in the listing) will go like this: $70K down, remaining over 24 months at 8% interest. Get it? The buyer of the business gets his downpayment back in profits that first year and can then spread out the balance for the next two years.

Read my lips: You don’t have to offer either the price or the terms the seller of the business requests. You maybe want to offer $120K for this enterprise, at $60K down and the rest over 36 months. All things being equal, it is likely a motivated buyer would accept that offer to buy her business.

But what if the buyer wants all cash? If the price is low-under $100k-it may not be much of a problem for most buyers. But even here, you will find business sellers willing to carry small notes.

Whatever you do when buying a business, do not be put off by an all-cash request. If that business has been perched on the listing system for awhile getting limited interest, the seller of the business may well swallow hard and accept a sale with terms.

Business buyers listen up: Don’t be put off by selling prices and fears over rustling up the money. That is not the place to start. First, find a business that you find attractive-financially and otherwise. Just look for something that catches your eye. Once you hit it, then look at price and terms. It may be affordable right there. In any case, if you have a broker of any value representing you, talk it over with him as frankly as you would present a matter to your lawyer. He may well be able to help you put together a reasonable offer. It might be conventional or even rather creative. It doesn’t matter. After perhaps a little dickering back and forth, you may get a deal.

And if you do, that’s all that matters. You have taken the first step toward realizing the dream of owning your own business.

3 Steps to Managing Your Business Credit For the Small Business Owner

As small business owners, many entrepreneurs may find it difficult to establish business credit and often have to rely on their personal credit history to get their business up and running. As soon as you decide to go forward with your business, there are a few steps you can take to start developing your business credit profile, which can help you negotiate better rates when financing with your vendors and suppliers.

1. First, if you have been operating for awhile, determine if you have a business credit profile. Check with D & B (Dun & Bradstreet) to see if they have an online file for your business. D & B is the leader in business credit reporting. If you do have a file available, review all the information to be certain it is accurate, just as you would your personal credit report. If they don’t have a file for your business, request a DUNS number and start building your business profile.

2. Add to your business credit profile by establishing your business checking account at a financial institution that understands the needs of small business owners. Compare rates and fees for maintaining accounts with the services that best suit your needs. Fees for simple actions such as the number of checks written or amount of cash deposited per month can vary from bank to bank and ultimately impact your bottom line. Look into whether you qualify for membership with a local credit union; they often have lower rates on many widely available services. Establish your utility services in your business name and pay for those services with your business checking account.

3. Be sure to pay your bills, especially your rent/mortgage on time. Your credit rating is determined by many factors, but paying bills on time is one of the top factors. Also, don’t over extend yourself with credit and keep your debt to cash ratio in mind. Also, get to know the credit history of your customers so you won’t jeopardize paying your bills on time because of slow paying customers.

Starting with these few simple steps can help you better manage your credit, which may affect your interest rates on everything from business lines of credit, equipment leasing, insurance premiums and even merchant cash advances. Invest some time in understanding what your credit is saying about your ability to do business, today and for many years to come.

Getting Accepted For A Small Business Loan

When starting a small business, one of the most important things to consider is financing. You will need enough money (or capital) to run your business until it begins to make a profit. One of the chief reasons that small businesses fail is lack of sufficient capital.

There are several ways to get enough capital to start and maintain a business but you first must decide just how much money you need. Do you need the money to expand or are you just beginning the business? Capital is especially critical in the beginning stages of a new business. Assess your risks, as that will affect your financing options and cost. Whether your industry is stable, growing or depressed it all affects how much money you can borrow and what interest rates you can get.

After assessing how much capital your business needs, you will decide whether you want equity or debt financing. Debt financing takes into account the company’s debt to equity ratio, the relation of the funds you have borrowed and those you have invested in the business. If you have invested a considerable amount into your business and have decent equity, it will be easier to attract financing. When a company has a less equity than debt, you’ll want to increase your equity investment for more funds so that you aren’t over-leveraged.

Banks, commercial finance companies, the U.S. Small Business Administration (SBA) and savings and loan companies offer debt financing. Historically, businesses have patronized banks for financing, especially for short-term loans. Banks will often turn down small businesses requesting long-term loans because of the risks involved. When a business applies for a loan, the lenders usually ask for the borrower’s personal guarantee as well as considering the business’s equity. This could require merely a signature or posting of collateral.

Most small businesses make use of equity financing. Commonly, the source of equity funding is from venture capitalists. These are institutions that risk money on small businesses, hoping for a good return for their investment. These venture capitalists may be individuals, government sources or financial concerns. One well-known example of capitalist investing is Silicon Valley.

Whether you decide on equity or debt financing, you will need to present a financial picture of your business. Any financial institution or investor will require documentation of your real or projected annual sales, how many people you employ, how long you have been in business, which type of business you have and who owns it.

You will need to put together financial statements for the past few years as well as current statements and submit personal financial statements of any partners, officers or stockholders that own twenty percent or more of the business. Any person or institution lending your business money will want to know exactly how the business will use the funds.

Lenders will scrutinize your financial statements carefully so the statements should be accurate and up-to-date. You will need balance sheets from the last three fiscal years, cash flow projections, personal tax returns for the past three years, income statements on the business’ profits or losses as well as accounts receivables and payables.

As you can see, it takes much careful preparation should you decide to apply for a loan. Your local SBA can be a tremendous resource in preparing for and applying for a small business loan.