Financing a Business

Financing an existing business can be time consuming but it depends on the route you go. Most small business owners will carry owner financing on a percentage of the deal. So if the total deal price is $100,000, you may only need $20,000 - $40,000 as a down payment and the sellers may carry the balance. Most sellers will carry the loan for 5 years at 6% -7% interest. They may also allow you to finance the loan over 10 years but require a balloon payment in 5.

You should always try and get the seller to carry a portion of the financing fist. It’s the easiest method in getting a deal done. If the seller will not carry a large enough portion with your down payment then you can look at alternative financing.

So how much do I need as a down payment? You should have 5% - 20% of the total purchase price as your down payment. For seller financed notes they may require up to 50% down but this will vary widely with each deal and sellers personal requirements.

No Money Down loans

It is a common misconception with Small Business Loans (SBA) on how easy they are to get. First and foremost, there is no such thing as No Money Down Loans when it comes to buying a business. Even before the credit crisis they did not exist. You will need at minimum 10% of the total purchase price as a down payment to get bank financing. Most small business lenders will not loan on purchases under $100,000 - $150,000 and they have additional requirements.

Personal Requirements in Financing:

10% Liquid Assets as down payment (They will prefer 20%)

At least 6 months experience working in a similar business or managing another business

A good credit score 620 and above minimum and no recent bankruptcy

Business Requirements in Financing:

The business will need to provide at least 2 of the most recent tax returns and the current years updated Profit and Loss statement.

The business will need to show it has sufficient provable cash flow after the loan debt service and the buyers personal financial requirements.

If you do not meet all 3 of the personal requirements and the business does not meet it’s requirements then you most likely will not receive an SBA loan and will probably be wasting your time. You should focus more of your time on either negotiating with the seller to carry the financing or find a different business.

Other Financing Sources:

There are a few other ways you can finance the business but it will require refinancing personal assets like real estate.

SBA Financial Assistance

SBA provides a number of financial assistance programs for small businesses including

7(a), 504 and disaster assistance loans. Within this section, we’ll review eligibility requirements, SBA’s loan programs, surety bonds and the role of SBA, equity capital topics, special purpose loans, SBA partner topics and 7(a) lender programs. Though the SBA does not provide grants to help you start a business, included is information on organizations and sites that can assist you in locating special purpose grants.

For More Information on SBA and other Business Financing Visit: http://www.sba.gov/services/financialassistance/index.html