Buying An Existing Business Part V of IX

Financing The Purchase

You've made the decisions to buy an existing small business, now you need to figure out how to finance it. When financing the small business you have three choices: pay all cash (not a good idea), third party financing or seller financing.

From a buyer's point of view seller financing is the preferred way to go. It is a positive sign when the seller offers to finance a portion of the purchase price. It means you are buying a business and paying for part of it out of business. More importantly it means the seller is confident you will succeed and repay him.

Many existing business buyers make an effort to keep the down payment as small as possible in order to retain more money for operational reserves. The sellers, however, may require a down payment of 50% or more, and that is often a good reason to seek out other sources of financing.

It may now be time to seek the help of an experienced commercial business loan officer.

Choose an experienced commercial loan officer. The best choice may be an SBA loan facilitator who already knows about federal small business administration loans -- not one you have to train yourself.

SBA lenders and commercial loan and mortgage originators with inside knowledge who can actually package and present federal business loans in government format service a diverse group of businesses that are often overlooked by most banks. Many banks and lending institutions are just not dealing with the real needs of small business. Using a commercial mortgage broker can often save you time and aggravation because they know how to prepare your loan request in government format and understand what it is that the SBA requires.

When applying for a business loan be prepared. This means providing a well thought-out package, including a business plan with at least three years worth of financial projections and financial statements so that the underwriter can reach an informed decision in a reasonable period of time.

Your loan package should always be concise and complete. A complete package gives your lending company or the SBA the impression that you are a professional, and they will view your package more favorably as a result.

Lenders will carefully examine your financial statement and business projections. As a borrower, you must be fully prepared to answer questions about them. Personal guarantees of the buyers or other principals usually are required,

Alternative Sources Of Capital

The Small Business Administration (SBA), suggests the following sources of capital in addition to banks:

Friends, Relatives, Individuals
Savings And Loan Associations Insurance Companies
Finance Companies
Mortgage Companies
Small Business Investment Companies
Venture Capital Firms
State Government Financing Sources
Pension Funds
Government Agencies (Such As SBA)
Private Foundations
Seller's Bank


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