First Time Business Loan

1,962 Views | 12 Replies | Last: 3 yr ago by txaggieacct85
AgEng14
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2:30p, 2/14/23
AG
I'm looking into purchasing an existing business as my first business. I'm looking into a few different businesses/industries but financing seems to be the hold up. The struggle I'm facing is that to buy a business(before someone else) you need to have finances in order but to get financing you need to have a specific amount/business in mind. Some of the businesses that I've been looking at are bought with cash offers before I can even get a call back from the bank. Are there any suggestions on how to juggle this? Or maybe a different approach?

Thanks,
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Sims
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In reply to AgEng14 • 3:17p, 2/14/23
AG
AgEng14 said:
Some of the businesses that I've been looking at are bought with cash offers before I can even get a call back from the bank.
You'll either need to go through a non-bank lender (Bluevine, Accion, Fundbox). You'll get higher rates but underwriting will be faster and more responsive with less red tape.

Personally, I would find an angel investor. Maybe someone in your family or social circle that believes in your more than the business.

It's tough to grunt through a business purchase without some alternative source of capital.
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txaggieacct85
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4:11p, 2/14/23
AG
you need to be a lot more focused on your business plan including your goals, projected income statement, etc.

A bank is going to need confidence in your plan, so jumping around businesses and industries doesn't help with that.

Why are you wanting to buy a business instead of starting your own business?

I also agree a bank is not likely your best avenue.
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BizBroker97
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In reply to AgEng14 • 6:15p, 2/14/23
AG
AgEng14 said:
I'm looking into purchasing an existing business as my first business. I'm looking into a few different businesses/industries but financing seems to be the hold up. The struggle I'm facing is that to buy a business(before someone else) you need to have finances in order but to get financing you need to have a specific amount/business in mind. Some of the businesses that I've been looking at are bought with cash offers before I can even get a call back from the bank. Are there any suggestions on how to juggle this? Or maybe a different approach?

Thanks,
Couple of things to offer you here ...

First off, you shouldn't need financing approval to make an offer on a business for sale - buying a business is night-and-day different than buying a house, for example. If you like a business and want to make an offer, then pull the trigger and submit an LOI, making sure to detail in your terms that you will be pursuing an acquisition loan. When the seller signs the LOI, then you take that to your bank, along with the business financials, to get the loan pre-flighted and ultimately submitted to underwriting for approval.

The other option is to simply get pre-qualified for an acquisition loan - this is an extremely simple step, and I'd be happy to introduce you to a couple of lenders that only do business acquisition loans. Keep in mind, this not a pre-approval or approval for an acquisition loan - it's the bank looking at you as a potential loan candidate and telling you the size and type of business they could support you acquiring. It's not full-proof, but it does give you and the seller some peace of mind that you'll be able to get the money.

Feel free to shoot me an email and I'd be happy to answer any other questions you have about this process.

Good luck!
jeremy@northstar-mergers.com
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AgEng14
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In reply to Sims • 11:28a, 2/15/23
AG
Thanks for the information. The trips to local banks have been very unsuccessful so I will look into something like this.

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AgEng14
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In reply to BizBroker97 • 11:30a, 2/15/23
AG
Jeremy, thank you for the details. I will likely reach out to you for some further guidance.
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txaggieacct85
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3:49p, 2/15/23
AG
banks won't loan you money unless you have money.

If you default on the loan, what would be used as collateral?

What's your basis for buying a company? I assume since its an existing business there would be existing cash flows and profits? are you buying physical assets...

a lot of missing information here, but banks aren't usually friendly, unless you command their attention.

I wonder how much money we're talking about here?

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AgEng14
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4:30p, 2/15/23
AG
Thank you for all of the feedback. One of the businesses I was looking at is a franchise. The reason it appealed to me is the area for sale from the franchise is close to where I live now. There are physical assets along with the sale of the franchise and it is well established in the area. How would I approach getting financing for something like this. The asking price is in the low 6 figure range.
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Win At Life
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In reply to BizBroker97 • 10:23a, 2/16/23
AG
BizBroker97 said:
AgEng14 said:
I'm looking into purchasing an existing business as my first business. I'm looking into a few different businesses/industries but financing seems to be the hold up. The struggle I'm facing is that to buy a business(before someone else) you need to have finances in order but to get financing you need to have a specific amount/business in mind. Some of the businesses that I've been looking at are bought with cash offers before I can even get a call back from the bank. Are there any suggestions on how to juggle this? Or maybe a different approach?

Thanks,
Couple of things to offer you here ...

First off, you shouldn't need financing approval to make an offer on a business for sale - buying a business is night-and-day different than buying a house, for example. If you like a business and want to make an offer, then pull the trigger and submit an LOI, making sure to detail in your terms that you will be pursuing an acquisition loan. When the seller signs the LOI, then you take that to your bank, along with the business financials, to get the loan pre-flighted and ultimately submitted to underwriting for approval.

The other option is to simply get pre-qualified for an acquisition loan - this is an extremely simple step, and I'd be happy to introduce you to a couple of lenders that only do business acquisition loans. Keep in mind, this not a pre-approval or approval for an acquisition loan - it's the bank looking at you as a potential loan candidate and telling you the size and type of business they could support you acquiring. It's not full-proof, but it does give you and the seller some peace of mind that you'll be able to get the money.

Feel free to shoot me an email and I'd be happy to answer any other questions you have about this process.

Good luck!
Username checks out.
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BizBroker97
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In reply to txaggieacct85 • 11:43a, 2/16/23
AG
txaggieacct85 said:
banks won't loan you money unless you have money.

If you default on the loan, what would be used as collateral?

What's your basis for buying a company? I assume since its an existing business there would be existing cash flows and profits? are you buying physical assets...

a lot of missing information here, but banks aren't usually friendly, unless you command their attention.

I wonder how much money we're talking about here?

The overwhelming majority of business acquisition loans on deals up to $5 million are SBA 7(a) loans. These loans are cash-flow based and categorically include a significant amount of goodwill vs. asset value. While the lenders do require a personal guaranty from the borrower, they do not require that the loan be anywhere near fully collateralized by the combination of business assets and borrower assets.

Typically, what they do require is that the borrower have post-closing liquidity in the general ballpark of the equity injection requirement. So if you are buying a $1 million business and putting down $100K, they want to see you have another $100K liquid for operational, or personal "rainy day," purposes.

SBA 7(a) loans can be incredible acquisition tools, and one of the main reasons is the lack of collateral requirement. Banks are less concerned with things like collateral when the government is backing these loans up to 75%!
jeremy@northstar-mergers.com
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BEaggie08
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In reply to txaggieacct85 • 11:47a, 2/16/23
AG
txaggieacct85 said:
you need to be a lot more focused on your business plan including your goals, projected income statement, etc.

A bank is going to need confidence in your plan, so jumping around businesses and industries doesn't help with that.

Why are you wanting to buy a business instead of starting your own business?

I also agree a bank is not likely your best avenue.
I can't answer for AgEng14, but I too am looking for something and this thread is helpful.

As far as the why - I'm looking for an existing business that has an established customer base and expertise with decent cashflow that I could potentially improve or grow in some way. Essentially looking to avoid the startup phase.

Also, closer to home than where I work now would be nice.
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txaggieacct85
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12:31p, 2/16/23
AG
"Typically, what they do require is that the borrower have post-closing liquidity in the general ballpark of the equity injection requirement. So if you are buying a $1 million business and putting down $100K, they want to see you have another $100K liquid for operational, or personal "rainy day," purposes."

This somewhat reiterates what I posted earlier.

banks won't loan you money unless you have money.
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txaggieacct85
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In reply to AgEng14 • 12:41p, 2/16/23
AG
AgEng14 said:
Thank you for all of the feedback. One of the businesses I was looking at is a franchise. The reason it appealed to me is the area for sale from the franchise is close to where I live now. There are physical assets along with the sale of the franchise and it is well established in the area. How would I approach getting financing for something like this. The asking price is in the low 6 figure range.
Have you thought about working your way into a business.

An example is you find a franchise you think is appealing and offer your services to work there with the idea of learning the business.

The idea would be you want to carry on the legacy of the old owner.

If you think it has potential, make an agreement with the owner to pay them a percentage of future something (revenues, gross sales, net income) to work off the purchase price.

The agreement could include guarantees and minimum annual payments.

If you really think you can grow the business, you could even offer some profit sharing or consider partial ownership.

Your capital is your energy and interest in the business you are considering purchasing and being creative with the current owner.



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