Most business buyers will use a business loan to buy a business. We help business buyers get a loan to buy the business we are selling. This is usually a seller loan or SBA loan. Most of the sales we have handled have been financed with SBA loans.
We can help a business buyer get an SBA business loan. This is desirable for both parties. The seller finances little or none of the sale. An SBA 7A loan allows the buyer to put down a lower down payment, typically 20% of the purchase price, and finance the purchase over a longer time, 10 years. The loan, a 504 loan, can be 20 years if it finances the purchase of real estate or equipment. We are getting businesses pre-qualified for SBA loans to help sell them. We advertise the low down payment that is required to buy the business. Our Confidential Business Review helps a buyer get financing by providing a report about the business that they can use when applying for a business loan.
Most sellers would prefer that a buyer get a business loan to buy the business from a lender. The buyer may not be able to get it if the financials of the business are not good enough or the business tax returns do not show good results for the last three years. Seller financing may also be needed if the lease that the buyer will get on the business premises is not as long as the term of the loan. A lender will not make a loan with a longer term than the length of the buyer's lease. Seller financing may be required to make the sale.
A loan from the seller is the quickest and easiest way to finance the sale. The buyer normally puts down 40% to 50% and the rest is financed by the seller over 3 to 5 years. The assets of the business are the typical collateral for the loan. As noted above, we get credit information from the buyer for you if this is how the sale will be financed.
Other sources of the money needed to buy a business are:
Self-Directed IRA - There are companies that can convert a buyer's IRA to one that is self-directed and the money in it can be used to buy a business. Two of the companies are Benetrends and Guidant.
Home Equity Loan - This is a quick way to finance the down payment or purchase price. It also is usually the lowest interest rate for the buyer.
Credit Cards - There are many businesses that got started, or financed, on a credit card.
Friends and Family - If these people are going to finance the purchase, we do require that they verify this directly with us.
These are the most common ways that a buyer can finance the purchase of a business.
BayState Business Brokers, 61 North Beacon Street, Suite 203 Boston, MA 02134
T: 617-562-5700, F: 617-562-5701, firstname.lastname@example.org