So You Want to Buy a Business?

One of the most widely used loan types the SBA offers are business acquisition loans. Much like my February commercial real estate article explained, SBA loans for business acquisitions generally allow for lower down payments, longer loan terms, and less restrictive loan requirements than a commercial loan. That said, generally, if you do not want to use SBA in a real estate deal, it can be done commercially with more money down. For a small business acquisition (under $5MM), SBA may be your only choice due to the high risk that a change in ownership creates, regardless of the strength of the business or your resume. 

So what business should I buy? I have done close to 100 business acquisitions during my 17 years in this business so here is my best advice:

1. Buy a business you have the passion and skill set to be successful in.

2. Shop within your price range based on how much cash you have. Although the minimum required down payment is 10%, be prepared for your lender to ask for more and you also need to have reserves for life’s surprises. Work with your lender to determine your price range.

3. Trust your gut. If you have a bad feeling or there’s a financial add back or operational process/ cultural issue that gives you a funny feeling...run away! There are plenty of fish in the sea. 

4. If you are buying a large amount of goodwill (over $500k), ask the seller to share in the risk by holding some seller financing. Hold the sellers feet to the fire. 

5. If possible, get your own broker to represent you rather than a transactional broker that represents both sides. Make sure you are properly represented. 

6. Get your CPA and attorney involved immediately to ensure every stone is turned over and every questions is asked. 

Otherwise, piece of cake! Good luck and give us a call so we can get the process started!