Financing The Transaction

With the current economic downturn, we should see buyers who have lost their jobs, for whatever reason, searching for a way to support themselves and their families. Many will hope to find new jobs; others will decide to look at going into business for themselves. From this second group, some will start from scratch, others will investigate franchising, and still others will look to buy an existing business.

The most recent survey conducted by Business Brokerage Press revealed that seller financing was involved in only 27 percent of the transactions. SBA financing was involved in 30 percent, bank financing in 20 percent and 23 percent by “other.” Interestingly, when asked what the main obstacle was that prevented sales from closing, financing topped the list at 30 percent. This was the biggest reason for deals not closing.

Many of the buyers considering buying a business to replace a lost job may not be candidates for outside financing. They may be scraping every dollar they can for a down payment and money to live on until they find a business and receive an income from it. Others may not have sufficient experience for SBA or other financing; the business itself may not qualify due to lack of assets – such as a service business. The reasons are endless.
As you will see from the statement below, SBA qualifications are tightening up. It never fails -- the economy is tanking and the first thing the government does is tighten up SBA lending, when what it should be doing is loosening requirements and increasing the annual amount that SBA will guarantee. The more small businesses there are, the greater the increase in jobs.

In order to maintain deal flow, seller financing is going to be absolutely necessary. Certainly, SBA and other financing will be available for those really good deals and the really qualified buyers. However, there will be many deals that may have qualified for outside financing some months ago that won’t qualify today, unless requirements are lowered.

No sense in promising outside financing in today’s market. Sellers must be told from the outset that they will have to provide the financing if they hope to sell their business.