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    Financing the Purchase of a Small Business in the New Economy
    Financing the Purchase of a Small Business in the New Economy
    Financing the Purchase of a Small Business in the New Economy
    Ebook122 pages1 hour

    Financing the Purchase of a Small Business in the New Economy

    By Peter Siegel, MBA

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    About this ebook

    Among the biggest challenges for people buying and selling small businesses in this, the New Economy, is the difficulty obtaining the money needed from financial institutions to complete deals. Funds needed for business purchases—like funds needed in many sectors of the economy, started to dry up following the financial crisis of 2007 and 2008. The result has been the drop in the rate of small businesses transfers since then. This problem has a significant impact on the growing numbers of buyers—people who are discouraged by problems in the job market--and want to take over an existing company. And it impacts the expanding population of “Baby Boomer” business owners ready to retire and seeking someone to take ownership of their companies. It is possible to get the money you need, says Peter Siegel, MBA, who has helped buyers, sellers and business sales intermediaries with small business funding for more than 20 years. His advice centers on new ideas and approaches, shaped by the realities of the New Economy. He shares, in this work, the strategies that enable him to help clients get their loan applications approved and achieve their economic goals despite the growing challenges in the business for sale marketplace.

    LanguageEnglish
    PublisherPeter Siegel, MBA
    Release dateJul 30, 2012
    ISBN9780985318338
    Financing the Purchase of a Small Business in the New Economy
    Author

    Peter Siegel, MBA

    Peter Siegel, MBA, is the Founder and President of BizBen.com, niche online community serving buyers and sellers of small businesses throughout the California market since 1994. In addition to his syndicated blog posts and articles about all aspects of buying, selling and financing the purchase of small and mid-sized businesses, Siegel has authored seven books on these subjects. Through his frequent writings, online webinars and ongoing consulting practice, Siegel provides assistance for thousands of entrepreneurs and professionals involved in California’s business for sale marketplace.

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      Book preview

      Financing the Purchase of a Small Business in the New Economy - Peter Siegel, MBA

      Financing the Purchase of a Small Business

      In the New Economy

      (Buying businesses with SBA,

      conventional, hard money loans, retirement funds,

      and other financing strategies)

      By

      Peter Siegel, MBA

      Published by:

      Peter Siegel, MBA on Smashwords

      Financing the Purchase of a Small Business In the New Economy

      Copyright 2012 by Peter Siegel, MBA

      All Rights Reserved

      This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

      Other Titles by Peter Siegel, MBA

      •Buying and Selling Small Businesses in the New Economy <Link>

      •Buying a Small California Business in the New Economy

      •Selling a Small California Business in the New Economy

      Table of Contents

      Introduction: What Buyers, Even Sellers of Small Businesses Need to Know In Order to Be Successful In the New Economy.

      The marketplace where small and mid-sized businesses are bought and sold has been impacted by the mortgage and banking crises we experienced a few years ago, and the recession that followed. And like other segments of the economy—the stock market, employment market, housing market, factory orders, retail sales and consumer sentiment are examples—the small business market has undergone some fundamental change. What worked in this market in the past may no longer be appropriate. New ways of doing business are needed for success.

      Chapter 1. Welcome to the New Economy

      The financing function, a major pillar of support for small business sales, has been dramatically altered by the banking crisis. To fund a business purchase now requires understanding the new rules.

      • Reaction to Lending Excess

      • Preparation More Critical Than Ever

      • Playing Lender Roulette

      • Seller’s Role in Purchase Financing

      • Room for Creative Borrowing Strategies

      Chapter 2. Fresh Approach for Borrowers Ready to Buy a Business in the New Economy

      What a buyer needs to know about getting the money needed to purchase a business. There are some differences in the way to do things compared to the past, if you want to be successful today.

      • Find Money First, Business Second

      • Understanding Current Reality in the Lending/Borrowing Environment

      • Adding Niche Financial Advisor/Specialty Loan Broker to Team

      • Tapping into Retirement Funds

      • Observe the Changed Buyer-Seller Relationship

      • Committing Business Ideas to Writing

      Chapter 3. Owners: To Achieve a Good Sale, Help Buyer Borrow the Money to Pay You

      For a business owner preparing to sell the company, a smart strategy is to prequalify your enterprise with a financial institution likely to make a loan to help someone purchase . What to do and how it helps.

      •34 Factors Considered

      • Factors in the Buy/Sell Contract Affecting a Company’s Borrow-Ability

      • Using a Niche Financial Advisor/Specialty Loan Broker

      • Seller Carry-back Loans

      • Partnership Selling Model

      • Creative Solutions

      Chapter 4. Choosing the Best Lender/Financial Institution

      Not all financial institutions are the same. A business buyer needs to know what is needed to raise money successfully and how to go about getting that money with good terms.

      • Survey of the Loanscape

      • Conventional Institutions

      • SBA-Backed Institutions

      • What Buyer/Borrower Looks For in a Lender

      • Hard Money Lenders

      Chapter 5. Important Elements of a Business Purchase Loan Request

      Putting the right information into an application means knowing what facts the financial institution needs and how to provide those facts.

      • The Target Business

      • Buyer/Borrower Requirements

      • Deal terms

      • Borrower Ability to Cover Obligation

      Chapter 6. Surprises - I Didn’t Think That Would Happen

      Five real life examples of what can go wrong – and why it went wrong -- while the borrower was waiting for an answer and expecting application approval. What loans requests could be saved, which could not.

      • Current Business Tax Return (Nobody told me)

      • Spouse’s Income (Too much information)

      • The SBA’s Franchise Registry (No one’s fault, but no loan and no deal)

      • Insufficient lease (Wrong department)

      • Change in terms (Seller standby not anticipated)

      Chapter 7. Smart Preparatory Steps

      Why the person reviewing your business purchase loan application typically is looking for obvious defects or problems so your request can go on the reject pile. And what can you do in preparation so that doesn’t happen.

      •Polish Credit Report

      • Seek Pre-approval

      • Structure the Deal Correctly

      • Include a Business Plan

      • Letter from Seller

      • Get Help From NFA/SLB

      Chapter 8. Avoiding Common Loan Application Mistakes

      Many business purchase loan applications are turned down, unnecessarily, just because of avoidable mistakes. The applicant should know about some of the common problems that can eliminate an app from consideration. Then make sure not to commit those errors.

      • Mismatch: lender and funding requirements

      • It’s Also Whom You Know

      • Get it Right the First Time

      • Connect the Dots

      • Disclosure Failures

      • The Waiting Game

      Chapter 9. Equity Financing - Getting Partners Instead of Creditors

      For those having a problem getting a loan to buy a business, another option is to raise money from people who then will have a chance to share in the profits.

      • When Equity Funding Makes Sense For Financing a Business Purchase

      • What’s In It for Investors

      • Personal and Legal Dangers

      • Key Considerations in Equity Deals

      Chapter 10. Answers to Frequently Asked Questions

      Look here for answers to common questions about raising money to buy a small or mid-sized business).

      About the Author

      ---------------------

      Introduction

      A major challenge faced by buyers and sellers of small and mid-sized American businesses—finding the money to complete transactions--has become even more of a problem since the mortgage meltdown and banking crises of 2007 and 2008. I’m made aware of this challenge most every day when we learn of yet another financial institution tightening its loan requirements, or even changing those requirements without notice, as it tries to find the most lucrative and the safest business sectors to serve. Understandably, that makes it far more difficult for hopeful business buyers to achieve their goals. I’ve heard too many sad stories from both buyers and sellers who’ve worked hard to put a deal together on a gas station, liquor store, small manufacturing company, or one of the thousands of other types of American businesses that change hands every month. In the middle of these tales is the description of a fruitless search for a financial institution prepared to provide the loan necessary to complete a deal. Or that even when a lender is lined up to help fund the transaction, the buyer/borrower learns, usually after a long wait for approval, that his or her application has been lost, or that it has shown up on the reject pile.

      The stories end when the buyer has to acknowledge he’s unable to meet loan contingency deadlines in the purchase contract. Meanwhile, owners trying to sell can’t plan ahead when they don’t know if an agreement with a buyer will be funded. And the seller faces the growing risk, as the company sits on the market, of a confidentiality breach resulting in business problems if employees, customers and suppliers learn the enterprise is for sale.

      To make matters worse, I see business buyers and sellers relying on their sales intermediaries to help them get financing. There may have been a time when that was a workable strategy. But in this economic environment--especially the world in which small and mid-sized business transactions are conducted--asking a small business sales specialist to also act in the role of a loan intermediary is often an error that results in losing the deal.

      The marketplace also is changing with the recent influx of buyers, as more people decide that the best route to a secure financial future is through business ownership by purchasing a successful, ongoing company. That is a more appealing scenario, for many, than continuing to take their chances working for someone else. At the same time, we see more businesses coming on the market, a consequence of the baby-boomer generation of business owners preparing for retirement.

      One result of this bigger, more active marketplace is to put added strain on the financing institutions currently offering loans for business purchases.

      These challenges occur against a background of near-chaos in money markets throughout the world, significant fluctuations in a variety of economic indices and the black shadow of financial failure affecting individuals, businesses and governments. This is the New Economy, and in many of its sectors, traditional ways of doing things are proving to be less than effective. That certainly applies in the marketplace where buyers and sellers of small and mid-sized businesses seek funding they need to complete

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