Alternative Financing Sources
Even with the steady improvement in economic conditions, business buyers may still have trouble securing financing for a business acquisition. Buyers may need to explore alternative forms of financing to "get the deal done". Here are three sources of financing that are worth exploring:
Sellers: Sellers should realize that most business sales have a seller financing component. This will probably not be an unsecured loan, so expect to give a personal guarantee or pledge a personal asset. A seller will not want the business as collateral—he’s selling for a reason and doesn’t want to end up taking his business back—especially in distressed shape. Don’t expect sellers to replace the banks: when offered, typical seller financing will be 20-30% of the selling price, but sellers may be able to offer better terms than a bank.
Vendors & Leasing Cos: There may be financing options available from leasing companies or business vendors of an established business. These companies may loan to you based on the value of accounts receivable, against future credit card transactions or they will buy the business equipment and lease it back to you. These loans can be more costly in terms of fees and interest than a traditional commercial bank loan. We recently learned of a credit card financing program provided by a national card processing company.
Landlords: Your landlord may agree to “leasehold improvements”. They cover the cost of some or all of a renovation or improvement to their property in return for an increase in the lease amount.
Customers: While not common, some new business owners solicit regular or potential customers for loans. In return the owner may offer the "customer-lenders" discounts or other benefits until the time they can pay off the debt.
Peer to Peer Lending: A new financing phenomena is known as “micro-lending”, “peer to peer” lending or community lending. These web based networks allows you to solicit loans from a large pool of investors. Most micro or peer lending sources have loan maximums around $40,000. Examples to research:
