- On most acquistions, the buyer needs about 20% to 25% of the total purchase price as a down payment, on the non-real estate assets being acquired, and about 10% of the value of the real estate as a down payment on the real estate being purchased (if/and/when real estate is included in the sale).
- Financial institutions (usually banks or non-bank lenders or credit unions) will provide 75% to 80% of the total purchase price on the non real estate assets being purchased, and about 90% of the real estate being purchased (when real estate is included).
- About 75% of the thousands of transactions ABMI has brokered over the last 28 years have been transactions that did not include real estate (the business being acquired was located in premises leased from a 3rd party landlord).
- On most small business acquisitions, the funds provided by lenders are provided in conjuction with a guarantee from the SBA (Small Business Administration). The buyer and seller of the business acquisition rarely have any contact with anyone at the SBA, as the lender is the point of contact, at the start of the financing process, and on through to the payoff of the loan.
- On some acquistions, the owner of the business being acquired will finance some of the purchase price. It is not unusual for the financing to be a combination of (a) the buyer's down payment, and (b) a seller note for part of the purchase, and (c) an SBA guaranteed loan from a lending institution.
ABMI has specialized in arranging the financing needed to complete transactions we're brokering, for almost 30 years, and volunteers to act as a guide for the buyer and seller throughout the entire process of the acquisition, at no extra charge to the buyer or seller. To arrange a no-obligation conference to talk about Financing, or any of ABMI's other valuable services, you may register with this ABMI web site, and we will contact you.
Business Buyer Financial Services
Business Buyers are our customers. Buyers typically contact ABMI, searching for low risk businesses to purchase. ABMI charges no fees to business buyers on most small business acquisitions transactions, and is paid a commission by the business owner/seller when the business sells, except for special projects at the buyer's request, when ABMI might be asked to represent a buyer in a transaction.
ABMI works with all buyers to help them not only find their “ideal deal” acquisition, and, when found, help Buyers arrange the acquisition financing (at no extra cost to the buyer/borrower).
ABMI has helped thousands of business buyers arrange financing, on hundreds of millions of dollars of acquisitions, of all sizes, all prices, over the almost 30 years we've been brokering businesses of all kinds/types.
And, ABMI works with the buyer's lawyer, accountant and other advisors to assist in a smooth, “clean”, low risk conveyance of the business assets.
ABMI also accepts special consulting engagements by business buyers whereby ABMI receives a retainer for it's search/acquisitions services, against a commission when the business is purchased. However, most small business acquisitions engagements with business buyers are on a no-fee basis for the buyer.
Accomplishing The Business Buyer's Goals
We begin the buyer's business search by consulting with the buyer about their “ideal investment”, helping the Buyer identify not only the kind of business they are likely to buy, but also the size business they can afford, and which investment would likely deliver the financial and career goals of the buyer and his/her family, and, just as important, we share with the buyer the “realities of the marketplace” about how businesses are priced/evaluated, and we invest the energy needed to help the buyer achieve the Return On Investment and Equity Build Up goals of the buyer.
From the beginning of our relationship with a buyer, ABMI also provides information to the buyer about the "realities of financing", including our describing the requirments established by lenders, the SBA, etc. That process helps ABMI and the buyer match up each buyer with business acquisitons that fit the buyer's available financial resources (down payment).
The search process includes showing the buyer the many businesses for sale that ABMI presently has listed, and includes surveying our Associates for information on listings they are in the process of bringing to market at any given time.
ABMI agents, consultants and advisors specialize in patient, professional services to business buyers, including working with the buyers' accountant and attorney to insure that all buyers receive adequate advice during their acquisition journey.
Free Financing Assistance Is Our Specialty
ABMI specializes in providing assistance in arranging the financing needed to make acquisitions possible. Over 80% of the thousands of transactions we've brokered since 1982 have been completed with financing arranged by ABMI associates.
These free financing assistance services include:
- ABMI provides acquisition financing advice and services at no extra charge to the buyer and seller.
- ABMI creates and produces the complete preliminary Loan Request Packet that’s used to show lenders the merits of the project.
- ABMI canvasses lenders in our extensive Lender Data Base, and makes the initial contact with the lenders on behalf of the buyer and seller, to discover lenders who would be interested in financing the project.
- ABMI delivers the preliminary Loan Request Packet to each interested lender.
- ABMI follows up with each lender.
- ABMI introduces the buyer/borrower to interested lender(s).
Private Equity Groups (PEGS)
PEGS Partnering With Individual Entrepreneurs/Business Buyers
Many PEGS have a program whereby they partner with an individual entrepreneur, with the PEG contributing substantial amounts of the funds needed to aquire a business, and with the individual providing some of the acquisition funds, and with the intention of the individual investor also serving as the CEO of the aquired business when the PEG and the individual take over the target company.
Business Owner/Seller Financial Services
Business owners are our clients. ABMI generally works for business owners (sellers) with whom we have a Listing Agreement, authorizing ABMI to market the business assets to a ready, willing and able buyer. no front fees to most small or medium size business seller/owner clients, and is only paid a commission when the business sells.
From the beginning of our relationship with a business owner, ABMI explains "the realities of financing", including explaining current requirements of lenders and the (SBA Small Business Administration), as well as the role seller financing plays in the transaction, so that the business owner can make decisions from an informed position. That process helps ABMI and the seller choose a price for the business, and terms, that offer the best opportunities for the business owner to realize the most benefit from the transaction.
On most transactions we've brokered over the last 28 years, we've been able to discover the needed financing without any owner financing by the seller of the business, and ABMI never requires a business owner to agree to finance any part of the purchase.
But, some business owners want to finance some of the purchase, so the owner realizes the interest income, and so the owner may defer the income and taxes related to the seller financed portion of the sale. The decision for sellers to finance or not to finance is solely the decision of the seller and buyer.
ABMI also accepts special consulting engagements by business owners whereby ABMI receives a retainer for it's services, against a commission when the business sells. However, most engagements with small business owners are on a commission only basis.
ABMI's Middle Market/Mergers & Acquisitions Division also accepts special fee based engagements from buyers or sellers of larger businesses.
Accomplishing The Business Owner's Goals
We begin the process by consulting with the business owner about their “ideal exit strategy”, helping the owner identify not only the price they wish to achieve for the business assets, abut also, structuring the marketing so that the seller receives the confidentiality and the terms they prefer. Also discussed, including consultation with the seller's advisors, are the seller's preferences for after-the-sale-involvement in the business (when applicable), the seller's long term financial goals and the taxable consequences of the sale. Then, ABMI works with the seller and his/her advisors to make those goals a reality.
Lenders come in all shapes and sizes and they can be as different as night and day regarding their approach and appetite for small business lending. Identifying the right lender is essential to avoiding unnecessary challenges and emotional turmoil associated with the financing process.
ABMI has specialized in matching lenders with buyers/borrowers for 28 years, and we've helped thousands of buyers arrange the fincincing needed. ABMI charges no extra fees for financing assitance in most cases.
All lenders apply some sort of underwriting criteria to their loan portfolio to minimize risk of default and satisfy regulatory requirements. Some of the criteria includes 1) loan to value ratios, 2) collateral pledged as security, 3) debt coverage ratio, and 4) borrower’s credit score.
Conventional (Asset Based) Lenders
Conventional lenders (most of whom are traditional banking or credit untion institutions), who generally make non-SBA guaranteed loans, lend money based on their opinion of how the proposed loan will fit within the lender’s existing portfolio of loans, assessing the risk factors in comparison to their current loan portfolio to gauge decisions.
Almost all "conventional" (non SBA) lenders are also what are commonly referred to as "asset based" lenders, meaning that the collateral of the business being acquired, and/or the personal collateral of the buyer/borrower, must cover usually 100% of the loan value. The loan may be serviced long-term by the originating lender or it may be packaged and sold to the secondary market. Conventional lenders have underwriting standards that typically require relatively high collateral requirements to satisfy the loan-to-value standards. And, conventional lenders commonly require a higher percentage of down payment from their borrowers than are required by "Cash flow" or SBA-oriented lenders.
Cash Flow Based Lenders
Almost all lenders prefer to have as much collateral as possible in any transaction, of course. But, lenders that are purely conventional/asset based lenders will seldom approve a small business loan that is not fully collateralized. There is another type of lender, commonly called "cash flow" lenders. These are lenders who may still prefer as much collateral as possible, but, their main criteria is in analyzing the cash flow of the business, and, if the cash flow is enough to show that the business operator can easily service the debt contemplated, the cash flow lender is likely to approve this loan, with or without full collateralization of the loan, with an SBA guarantee. Of course, even the cash flow lenders will require that the other standard lending criteria are in place, such as: adequate down payment investment by the buyer/borrower (equity injection); an absence in the buyer's personal financial life of negative credit information; the professional past experience of the buyer/borrower (buyers need to have had experience in managing money and/or people, in past jobs, or past experience in owning and operating or managing a business); and the buyer/borrower has to have a business operating plan that looks sound to the lender.
ABMI keeps informed at all times, in all economic situations, in good times and in not so good times, of which lenders are available to make the loans for the business acquisitions we broker. For 28 years we've been helping business owners, business buyers, and lenders with the introductions needed, and the loan packaging required, to make the financing "painless" for all parties. ABMI volunteers to manage the financing process on transactions being purchased through ABMI.
The SBA (Small Business Administration) is a government agency/program design to help promote investment in small businesses. The SBA guarantees a portion of the loan for the lender. The guarantee can be up to 90% of the loan amount. This means that the lender’s risk is substantially reduced, reducing the pressure on the borrower to provide collateral that could otherwise be considered impractical. SBA lenders are often conventional lenders that have chosen to participate in the SBA program. Depending on the volume of SBA loans lenders can earn the status of Certified Lender or a Preferred Lender.
With most SBA guaranteed bank loans, it is not required that the collateral cover 100% of the loan amount, and the lender usually will allow the buyer/borrower to invest a smaller down payment than do most "asset based" conventional lenders. Commonly the borrower provides 20% to 25% of the purchase price as a down payment, and the lender provides the other 75% to 80%.
The Certified Lenders Program (CLP) is designed to expedite the loan application process received from lenders who have a successful SBA lending track record and a thorough understanding of SBA policies and procedures. CLP lenders will perform a complete analysis of the application and, in return, SBA commits to a fast loan decision. SBA reviews the lender's credit analysis as opposed to conducting a second analysis. SBA still makes the final credit and eligibility decision but, by completing a credit review instead of an independently conducting analysis the approval turn around time is shortened.
The Preferred Lender Program (PLP). As a Preferred Lender, SBA delegates loan approval, closing, and most servicing and liquidation authority and responsibility to the PLP Lender. Preferred lenders are nominated based on their historical record with the Agency. They must have demonstrated a proficiency in processing and servicing SBA-guaranteed loans.
The borrower interacts directly with a loan originator at the local lending institution in the same way as they would for a conventional loan, but the paperwork is a little different. When considering an SBA loan look for an SBA “Preferred” lender. Working with a preferred SBA lender will help the process go more smoothly.
Alternative Funding Options
Account receivables factoring
Many businesses extend credit to customers on net terms for goods or services provided. The collection of this credit is usually considered reliable due to the recurring nature of most customers’ relationships and/or the business relationship with customers. These unpaid balances are referred to as Accounts Receivable. “Factoring” is the selling of accounts receivable or invoices to a third party as a method to secure immediate, working capital.
A factor company purchases receivables by giving the business owner an advance payment up front. This advanced payment is usually 70 - 90% of the total value of the receivables. After charging an administrative fee (2% and up) the remaining balance is released upon full receipt of payment for the receivables/invoices. This is a financing method that allows a business to make potentially larger sales with the working capital to continue operations and further growth.
Partnering with a leasing company to sell and lease back equipment can be an effective technique to generate funds for your business. There are a number of benefits associated with leasing equipment such as expensing payments for equipment as opposed to capitalizing the expenditure. There are restrictions that should be taken into consideration to determine the tax implications of expensing vs. capitalizing the cost of equipment. You should consult with a tax advisor knowledgeable about your specific situation to assess your options.