We are Business Brokers that work closely with a group of institutional lenders (both SBA and Non SBA) that specialize in financing new business purchases so that our qualified buyers are able to consummate a purchase to which they are otherwise committed. Toward that end, our business brokers can assist you by compiling various financial information and records and obtain pre-qualification for third-party financing.

In order to obtain third-party financing, a lender will typically require that the business demonstrate a history of financial earnings performance and the business buyer must establish that he or she has the background and experience to ensure the continuity of the business in the future since most lenders are concerned with the financial performance of the business under the leadership of a new owner. Furthermore, the lender will likely want to collateralize the loan with the assets of the business, the buyer’s personal assets, or both. Realize that anything of value that the business owns can be used as collateral and the faster those assets can be converted to cash, the more attractive they are to the lender. Thus, accounts receivable will have greater value to a lender than equipment because it can be converted to cash easier and usually at the pre-determined amount assigned by the lender; whereas equipment and machinery will be more difficult to liquidate and therefore, the lender may only assign a liquidation value to these assets. In any case, most lenders will have guidelines by which they discount the assets for collateralization purposes.

Determine the Amount of Working Capital Necessary to Fund the Business

The financial requirements of the new business may be greater than the amount you need to complete the purchase. Whether this working capital comes from you personally or from a lender, it is a typical rule of thumb that you have enough working capital available to cover three months of operating expenses assuming a fifty percent decrease in gross revenue as an extremely conservative precaution. Therefore, if you are currently employed and own your own home, you should consider applying for a home equity line of credit while employed and your current employment is available as a credit reference. You will not incur any interest expense until you draw upon the line and it will be available later when and if you need it.

Some of the options available for a buyer to consider are enlisted below:

1.Seller Financing

Most small business purchases involve seller financing, which includes the seller financing a part of the purchase. Generally a seller only gets involved in financing the purchase if he is certain about the viability of the business in the future.

2.Small Business Administration (SBA) Financing

The Small Business Administration was established to help grow the economy through loans to small businesses for acquisition as well as expansion. The SBA web site (www.sbaonline.sba.gov) is a great resource to small business owners. The SBA will finance up to 70 percent of the purchase payable over 10 years. They will also provide funding working capital and have separate programs to fund machinery purchases as well as real estate.

At Quantum™ Business Solutions Network, accountants and financial experts provide the necessary guidance to buyers in financing the purchase.

Visit our website, www.QBSNet.com

This entry was posted on Tuesday, March 11th, 2008 at 1:49 pm and is filed under Buying a business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.