You’ve caught the entrepreneurial bug and you’re ready to purchase a small business. Maybe you’ve even found the exact local company that’s a perfect fit for you. Whether you’re just starting out, looking for a change in career, or transitioning into a working retirement, your deal begins and ends with proper financing.
If the word financing sends a little shiver of fear down your spine or immediately fills you with dread, you’re not alone. Obtaining the necessary financing can be complicated, confusing, and daunting. But financing doesn’t begin and end with bank loans. Being creative and flexible with your financing options can be totally above-board and straightforward, and it can lead to more revenue in your pocket, quicker. Here are a few inventive options you should keep in mind when buying a business.
Friends and Family
Thirty-eight percent of small business owners state they’ve received financial help from friends and family to support the growth of their business. By giving friends and family the opportunity to grant you a personal loan, bound by a contract, or buy in for equity in the company, you can avoid asking for a handout and focus on business. Just have your plan ready, along with the numbers to back it up. Many entrepreneurs say that having those close to them contribute inspired them to work even harder than before!
Chances are you’ve never heard of the ROBS, or RollOvers as Business Startups, program. Plainly put, you can use your retirement 401(k) or IRA funds (excluding Roth IRAs) to fund the purchase or startup of a small business—tax deferred and penalty free. This gives you the incredible opportunity to take your nest egg and invest it in your own money-making venture, either avoiding a bank loan altogether or combining funds with a loan. Either way, you become profitable much more quickly than relying solely on loans, and you can put the gains back into the ROBS to increase your retirement nest egg.
Transworld works with several reputable companies who provide ROBS, and we can help you find the right providers to be sure that you are doing this right.
Small Business Administration (SBA) Guaranteed Loans
Every lender is not created equal, even when providing an SBA guaranteed loan. There are hundreds of options out there, and each bank is dealing with their own pot of money and internal policies, in addition to the requirements put out by the SBA. This means every lender will have a different set of biases and risk appetite, especially when it comes to small business. Being willing to shop around for the right lender, and having your trusted business broker help guide you to the right fit, can make all the difference when seeking financial assistance to close the deal.
Home Equity Line of Credit
If you have enough equity in your home, a great way to save money (particularly with interest payments) is to borrow against that equity to purchase the business. It is a much simpler process than an SBA loan, and most banks will take a lien on your house to secure the SBA loan in any case. So, if you have the ability to do so, a HELOC is a great way to fund your business.
We have discussed seller financing in other emails, and that can help supplement any of the the above options, but you should not rely solely on the seller to help you make the deal happen.
One of the benefits of working with us is that we have an experienced former commercial banker on our team who will guide you throughout the process!
Transworld works closely with financial partners who offer unique products, and who provide good deals to small business owners. We are also well acquainted with blending contributions from friends & family, using savings, and the right lenders to close a deal. We’d love to use our network to help you get the best deal possible.
Want to learn more? CLICK HERE to schedule a no-obligation appointment with one of our experienced agents!