Many clients started their business through purchasing existing businesses. Most of them do not fully understand the options available in negotiating the deals. They are so pleasant to learn that banks are quite encouraging and generous with the lending, particularly with the CSBFL programs for many entrepreneurs.
Here is a list of the key financing factors require attention before signing.
Down Payment Required by banks
It is common that 5-10% as a minimum deposit for purchasers to start with. Each deal is unique but working capital for the coming operation and sufficient funds available are two things that should be kept in mind. Sometimes, the timing of funds available should be carefully planned.
Terms of loan
For CSBFL, common loan term is 5-7 years, which is supposed to match with the lease term or the minimum years required by loan program. Depending on if real estate property is involved, the term may be extended to 25 years. The longer loan term, the better cash flow.
Combined of loan and other credit facilities
Again, each transaction varies depending on buyer/seller’s situation. Sometimes, buyers may not be able to secure full financing as expected in CSBFL ($350,000). Another alternative is, a term Loan may be available and approved by regular banks. However, in order to qualify for this loan, loan applicant should have strong personal credit and sufficient personal net worth to support the application. Sometimes, a line of credit is available depending on the applicant’s personal credit history.
Seller Financing
This is the option that is unknown to many buyers. In some industries, seller financing is quite popular. This type of financing is also called Vendor-Take-Back financing. Sometimes, regular financing is unavailable/partially available to buyers. Sellers provide financing to bridge gaps in order for closing the deal. From a tax perspective, sellers may benefit from this arrangement but exposed to certain credit risks of outstanding financing provided.
We have been working with many buyers and bankers to successfully close financing application. We have several preferred lenders that we recommend to our clients. It helps to work with banks that have experience with . Give us a call at 647-872-6656 for more details.
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