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How to finance your exit

There are numerous financing options for the business owner seeking to sell their business. For most business owners the key consideration is how to maximize the sale price. Some of the most common alternatives and issues are as follows:

Buyer Pays All Cash: This is the Seller’s dream. Buyer writes a check for the entire amount and the Seller goes to the beach. However, few Buyers have the cash and a sophisticated Buyer will not enter into this type of transaction. In addition, the Seller could be liable for significant tax obligations

Seller Financing:  Most transactions will have some form of Seller financing. And, in many cases banks will incorporate that requirement before they will do a loan. The banks logic is: “If you will not bet on the future of this business-why should we”? The issue for the Seller is making sure that they will get their money.  The Seller should demand at a minimum a financial statement from the Buyer(s) and require multiple signatures on the promissory note.

Traditional Bank Financing: Bank financing for a business loan typically comes with SBA participation for the loan. The bank will require 3 to 5 years of complete financial statements, collateral, appraisals, a business plan, often previous experience and possible performance requirements for the business and Buyer guarantees.

Private Lenders:  This is relatively new area for lending. It has many of the paper work requirements of a traditional lender but this type of lender is able to do loans which banks cannot do and does not require SBA participation. Interest rates are 1 to 2 percent higher than traditional lenders and the closing is usually quick.

Good Luck!

- Steve Sink | CBI and M&AMI | ss@phxaffilaites.com

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