How will a buyer finance the purchase of my business?

Have you ever wondered how the buyer of your business will finance the deal?

A buyer can purchase either the assets or the stock of a business. Most asset purchases involve the transfer of some assets and liabilities. In buying the stock of a business however, buyers acquire the assets, liabilities and risks too.

There are a number of ways in which buyers finance their acquisition. Sometimes a buyer uses his own funds. Sometimes he applies for a bank or SBA loan. Sometimes the deal includes seller financing or an earn out agreement.

Seller financing is more common now than it was 10 years ago, and banks often look favorably upon deals that involve seller financing in part.

Leveraged buyouts sound appealing and are sometimes a component of the deal. They allow a buyer to maximize returns by minimizing the cash he invests up front. Some of the assets such as equipment, real estate or inventory are leveraged to help finance the acquisition. However, this method can also maximize the buyer’s losses and negatively impact his rate of return.

Usually, in acquisitions of small companies, the deal involves a combination of seller financing and a bank or SBA loan.

These are just a few of the topics I discuss with my clients.