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Loans for Buying a Business
The
time and energy spent negotiating to buy a business is significant.
As this process evolves, you should seek advice from a circle of
professionals that should include an accountant, attorney, banker
and/or financial consultants. Talk to us and your bankers as early
as possible in your negotiations. We would typically identify “what
it is you are actually acquiring”, e.g., the type of assets,
etc., and help structure the appropriate type of loans.
NYBDC will
focus on the financing of the fixed assets. Based on their useful
life, we will determine the number of years for the repayment of
the loan. NYBDC’s loan sizes range from $50,000 to $1,500,000.
We are a complement to bank financing and do not compete with our
partner banks. Many loan structures include NYBDC, Bank and other
subordinate lenders. It is difficult for us to finance goodwill,
customer lists and other intangible assets, but we have many contacts
in the financing community and may be able to put the right team
of lenders together. We can utilize government guaranteed
programs such as the U.S. Small Business Administration, Rural
Development, various community loan funds and make contacts with
venture capitalists to help put the financing pieces together.
Here are some things to consider when buying a business:
The Purchase
Price
• How
has the seller determined the price that they want to sell the
business?
• What are the specific assets you are acquiring
and what is their market value?
• Have they been appraised?
Financing
• How much cash do
you have to contribute to the purchase?
• How much cash do you have for a working capital
cushion as you learn the business?
• Is the seller willing
to hold a note for part of the purchase price?
The Business Cash
Flows
• Is there a dependency
on any large customers?
• If
you lost a large customer, how would it effect the business?
• Who
are the company’s suppliers?
• Will the vendors
sell product to you at the same price and terms as the seller has
historically paid?
• What expense changes can you make
when you own the business to improve profits?
• What did
the previous owner take in total compensation and what do you need
to take?
• If the company leases their space, how long is
the lease and can you assume it?
• Are there key employees
that you must have stay with you?
• How will you be sure
to retain the key employees?
These are just a few of the issues
you need to consider as you negotiate to acquire a business. Talk
to your financial advisors and then contact NYBDC.
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