A 60% increase in the total number of loans/financing placements made to buyers of small and mid-sized businesses in the U.S. this year compared to the same period last year. The money is used by buyers to help fund their down payments, business purchases and to provide some of the working capital they need to operate their newly-acquired businesses. The surge in business purchase financing is helping to drive the growth in the rate of business for sale transactions. California, for example posted an increase of nearly 40% in the number of business sales last month compared to October of last year.
The boom in lending/financing results from increased willingness by financial institutions to engage with the business-for-sale market, and from the broader use of innovative borrowing strategies. I’ve had an opportunity to participate in the trend toward more successful methods used by business buyer clients who otherwise may not have been approved for the loans they need, and in time, to complete their business purchase transactions.
Among these strategies are:
--Greater reliance on financial institutions not offering SBA loan type programs. While the Federal Agency provides business purchase financing at lower interest rates, loan applicants find it more difficult and time consuming to get approvals when seeking financing from SBA-backed lenders. About 75% of the increase in loan approvals this year is associated with financial institutions not in the SBA lender network.
--Use of “bridge” loans to get the more readily available non-SBA loan programs to complete a deal. These obligations can then be paid off after months or even a few years with funds obtained from an SBA-backed lender. On the other side of the “bridge” the borrower can seek the best, least expensive loan program when he or she has less time pressure and can demonstrate a track record of successfully running the business.
--Hybrid loans strategies involve the use of funds from both SBA-backed lenders and institutions offering non-SBA financing tools. This is a bit of a balancing act in which the purpose of one loan is to help with a down payment and the funds from the other might be applied to working capital requirements or playing off other debt.
--Requesting smaller loans can improve the buyer/borrower’s chance of receiving funding approval. The strategy of using smaller amounts to put toward a down payment often works well with follow-up funding using bridge loans or hybrid loan programs. In one case, the seller agreed to take a reduced sum in a down payment, receiving more money the following year when the buyer was able to obtain additional funds.
--Strongly collateralized borrowing enables the buyer/borrower to receive cash with a re-written first mortgage or a second mortgage using a home or other real estate as security. This strategy has a greater chance of success more recently as home values and owner equity have begun to increase in most parts of the country.
--Private lending can be a powerful strategy for the buyer who needs cash almost immediately to win a bidding contest for a desirable business. This method also is often the best way a buyer/borrower can get funds needed for a business purchase if he or she isn’t able to get approval from a chartered financial institution.
Over the number of years I’ve worked as a niche financial advisor/business loan specialist, I’ve had the opportunity to become very familiar with the inner-workings of the lending industry, and have built an extensive database of people in the industry who can be of help to clients. With the ability to match borrowers to the best appropriate lenders and to create borrowing strategies based on some of these principles, I’ve been able to recommend innovative approaches and contribute to some of that growth in the number of loans made to business purchasers.
Upcoming webinar and podcasts will enable me to share many of the things I’ve learned and devised that can be creatively applied to the challenge of getting funds for business purchases. Be sure to watch this site often for the announcement about these learning opportunities and phone me direct at 866-270-6278 to sign up for notices of these FREE online webinars and interviews on Business Purchase Financing topics.