Selling Your Business? Guidance from a Commercial Lender

In our third installment of “tips from the experts,” we discuss a topic of great importance to both buyer and seller: how will this transaction be financed?

When a buyer or seller contacts me to inquire about the business brokerage process, it has been my experience that financing is not always at the top of everyone’s mind – but it should be! Many companies listed for sale never reach the closing table, and lack of financing is almost always the reason these businesses do not sell.

While it would be a much easier process if all buyers brought 100% of the contract price and associated costs in cash to the closing table, this rarely happens.

Typically, seller financing and/or SBA loans are used for financing a sale. SBA loans are guaranteed by the Small Business Administration and are provided to small companies.

Christopher J. Kneer is vice president of commercial lending for Community Bank and specializes in both conventional and SBA loans. He explains, “Banks view business acquisitions as risky transactions for two primary reasons: change of ownership and financing of goodwill. For that reason, we utilize the SBA.”

Kneer provides these tips for potential sellers:

The time to begin preparing for the sale of your business is three years out. To get the highest price for your business, you need to have multiple and consistent years of earnings. Banks and many buyers are suspicious of one great year and dramatically different results in previous years.

Accounting quality is very important. An arm’s length CPA should be working with your company. Accounting issues and statements that do not match up from year to year are a major red flag. If there are significant line items or particular issues on your financials, be upfront and point them out. Spend the money on good accounting and it will come back twofold.

Show earnings. The time to strategically limit profits for income tax purposes is not while you are preparing to sell your business. No bank wants to see a company that loses money every year and bases its sales price on “add-backs.”

Have buyers pre-qualified. Banks want to see buyers with industry experience, proper equity injections, and liquidity. It does no good to show your businesses to those that cannot qualify for financing unless they are cash buyers.

Plan to have a seller note involved in the transaction. Due to changes in SBA financing, it is often necessary, and it also shows good faith in that you are willing to stand behind the business for sale.

Plan to stay on for a period of time. This also shows good faith that you are willing to help the new owner be successful.

Solid and sound advice.

Help! How do I create a strategic business plan?

Twenty-something years ago, I received my Bachelor of Arts degree in Business Administration from a recognized state university. But how much practical or "real world" knowledge did I gain with this diploma?

Recently, The Wall Street Journal printed a reader's question concerning business plan strategy — something that was not covered in his academic studies.

The reader began by stating he had a college degree in business, but his formal education did not include learning the specific components that make a business plan successful. He asked if there was someone who could review his business plan and give the necessary feedback to ensure its success before the plan was formally submitted to lenders and other outside parties.

Barbara Haislip responded by suggesting a free and knowledgeable resource: the Small Business Development Center (SBDC). The Office of Small Business Development Centers provides man agement assistance, information and guidance to new and established small business owners through a cooperative effort of the private sector, educational community and federal, state and local governments. The best news? This assistance is available in all 50 states and U.S. territories at no cost to the small business owner.

Haislip suggested that prior to approaching the SBDC, an entrepreneur should include the following items in his business plan:

  • discussion of customers
  • review of present and potential competition
  • presentation of marketing strategy
  • list of all resources necessary to the business

Haislip further explained most entrepreneurs will also need a financial plan (generally showing two or three years of projected income and cash-flow statements and balance sheets).

Check out for more information and to find the SBDC branch closest to your business.

Buy A Franchise – Factoring and Accounts Receivable Funding

A franchise-factoring company provides funding to small and medium-sized clients. Factoring is the funding of B2B accounts receivables. It's a finance business similar to banking where clients are provided with cash, based on creditworthy receivables verified with the clients' customers.

If your clients are selling products or services to their customers and offering terms of 30 days, or even longer, as a factoring franchisee you can provide immediate financing and ease the capital crunch.

Theses are some of the financing solutions provided to clients as per Franchisor:

1. Accounts Receivable Financing
Typically referred at as "factoring", AR Financing is neither equity nor debt, yet strengthens a balance sheet – and control of the business always stays with the owner. It is a trusted and effective method of both financing short-term cash-flow and outsourcing the administration of credit and the task of arduous collections.

Factoring is a time-honored financing solution that offers many advantages while allowing business owners to focus on operating and building their client base. As opposed to banks, for instance, flexible underwriting is offered. We don't require the lengthy process, personal credit score, business history and restrictive covenants necessary for traditional debt.

We support start-ups and high growth businesses, as well as businesses recovering from financial difficulties. Our ability to fund and service your business can keep up with the demands of growth without having to re-qualify you for a larger loan and charge any subsequent fees.
Your balance sheet remains strong, most importantly. Because we actually purchase the invoice from you and do not take an equity position, you incur no debt and keep control of your own business.

Additionally, we provide a thorough credit analysis on all potential and existing customers so that you can make an informed decision on extending credit, thereby minimizing the risk of bad debt.

2. Purchase Order Financing
Purchase Order Financing is the perfect solution for short-term funding requirements. It can be used to finance the purchase or the manufacturing of specific goods that have already been sold. We enable this process by issuing letters of credit or providing funds that allow our clients to secure the inventory they need to fill their open sales orders.

Through purchase order financing, we also support both domestic and international transactions, and clients enjoy the working capital needed to grow sales and take advantage of profitable opportunities that are larger than they can otherwise support. We are not a bank and are not bound by the restrictions necessary for traditional lending products. Our focus is the underlying transaction and its economic and commercial viability.

Purchase Order Financing is used by manufacturers, distributors, importers and exporters. It can be used for payments to third-party suppliers for goods, issuing Letters of Credit, and for making payments for direct labor, raw materials and other directly related expenses.

Our clients consider Purchase Order Financing if they lack either sufficient capital or international expertise to complete their transaction. With respect to the latter, they might prefer to reduce foreign risk and in some cases protect the identity of their manufacturer from the end customer. In all cases, however, they appreciate the speed of funding, preservation of equity and increased profits at the end of the day.

3. International Factoring
This form of financing gives business owners the ability to offer open credit terms to foreign buyers who they would normally not be able or feel comfortable selling to without a traditional deposit. Because we fund the invoice upfront and take on the risk, business owners can now increase their foreign sales freely while improving their cash flow.

Foreign receivables are usually underserved assets. Domestic banks or lenders typically consider foreign receivables to be ineligible and do not feel comfortable providing capital availability against these foreign receivables. We lend against foreign receivables, giving the business owner more capital to grow the business and pay expenses.

As business owners and operators, we understand selling to international customers is a huge opportunity, but difficult to manage financially. There are certainly common issues to deal with and we offer you support in this regard.

As the Franchisor, we provide most of the back-office services required, check customer's credit, do all the collections and will fund our Principals up to six times their committed capital!

This is a home-based opportunity with no employees, no inventory, ideal for a professional looking to replace six-figure income. If you are an experienced business executive or professional person looking for a successful career where your past business accruement and networking skills can be used to build a high-income business go here and look in the Financial Related, Factoring Company category.