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Financing Your New Jersey Business

Financing Your New Jersey Business

When a New Jersey business owner is thinking about selling a business, it is common that insufficient thought is given to how the buyer will pay for the transaction. The reality, however, is that it is the seller’s problem to ensure that a smooth and closed transaction is achieved.

All Cash Deals Are Undesirable

Most prospective buyers you encounter will not want to pay cash, even if they have the ability to do so. The down payment is usually between 10 and 25 percent and the balance is typically financed by a lender, the seller or a combination of these resources. Business buyers frequently finance the purchase through the Small Business Administration (SBA). SBA will make cash flow loans that are not fully collateralized, unlike conventional lending.

What Your Financial Institution Wants

As a possible seller, you should be aware of what financial institutions want to make a business purchase loan decision. Besides a good buyer and a sufficient down payment, the lender is going to require the following:

Business and industry buyer experience. Have you managed, or at least worked in, the industry or business that you want to purchase?

Documented cash flow on the part of the business. The cash flow must be sufficient to support the debt service. Payment of principal and interest plus some cushion should be evident in the event that business drops.

Can the buyer make a living? In addition to cash flow being adequate to support the debt service, and a cushion, there should be adequate cash flow to provide the buyer with a salary at least equal to what they would earn in the same industry as an employee.

Will the seller provide some financing? While not a requirement, it gives a financial institution some additional assurance because it shows that the seller has confidence in the continuity and success of the business, and in your ability to manage it successfully.

Seller Financing

If there is a financial institution providing financing along with the seller, the seller’s legal position will usually be subordinate to the bank.

If you would like to receive a cost-free consultation regarding financing the sale of your business, please call Brad Palmer, C.P.A. at Crown Business Brokers, LLC. (908) 931-9300.

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Financing Your New Jersey Business

Financing Your New Jersey Business

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