When it comes to buying a business, as the buyer, you may be apprehensive about paying the entire purchase price up front. No matter the transaction size, the purchase price is always going to seem like a pretty sizeable lump sum. However, it is pretty uncommon for a business buyer to pay the full purchase price at the closing table. There are several ways to finance the purchase of a business that do not require the entire purchase price payment to be made all in one sitting.
One common practice in small business sales is using seller financing. This is where the seller of the small business provides some amount of financing for the buyer, usually in addition to a down payment by the buyer. The amount of the seller loan will then be paid off over a period of time as agreed on in the promissory note and will include terms for the interest rate. Paying off the purchase price over the course of a few years is of great benefit to the buyer, and keeps the seller interested in the business and accessible to the buyer.
Another common option for financing a small business acquisition is through the SBA where the SBA is the guarantor of the business loan. In this option, the buyer will also pay a down payment. The SBA does have specific requirements to fulfill when assessing this financing opportunity and will review the buyer’s credit score, career experience, personal finances, as well as additional information on the business to be purchased. These requirements confirm that the buyer has the ability to successfully operate the business and the capability to pay the loan back in compliance with the SBA loan terms.
The final option for financing the purchase price payment would be to use a non-traditional lender, which have become more popular and numerous in recent times. Financing the purchase price of a business acquisition is a common practice in the small- to mid-sized business mergers & acquisitions industry. If you are a buyer looking to buy a business and are interested in delving deeper into your financing options, we invite you to schedule a free consultation with a business broker or visit our website for more information.
Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!