I am in the process of buying an existing business and thought I would pass on what I have learned in the process.
Most small business loans are backed by the SBA. You can find a list of lenders at www.sba.gov/localresources/index.html select your state and then SBA Lenders. I personally prefer fixed rates since historically prime has reached 18+%. I have found that Wachovia, Wells Fargo, and one of my regional banks offer fixed rates.
Lenders will require at least three years of tax returns for the business and yourself to even begin so have them available. They will also require the business financials. Something else to consider, do the financials show a true picture of how the business is performing? The current owner of the business I am purchasing has used a few different strategies to offset his tax liability so the tax returns show less than true profit. Fortunately, my broker has created a spreadsheet that shows exactly what has been done which more than satisfied the lender. This particular lender said that he and his lending institution are more than happy to recognize justifiable tax strategies but he won't talk to people who are purchasing businesses that have unjustifiable tax strategies such as leasing Hummers as "company vehicles" and paying for the kid's gas while he is in college.
Lenders want to see a business plan with reasonable sale/profit projections of 3-5%. Unrealistic projections get red flagged so don't put down that your business is going to grow 80% next year. This seems to be more of a test of a buyer's knowledge of the type of business being bought and what it can realistically do. Other than that he said it's pretty worthless since no one can truly predict exactly what a business will do next year so it just goes into the file.
Be prepared to write the lender a refundable deposit of $1,500-2,500 to process the loan. Normally your personal credit check will cost the lender $50-70 and the rest is applied to the loan. This deposit is designed to eliminate time wasters.
Once the lender is comfortable with the financial side of the transaction, they will want to know that you have industry experience or experience of a similar level in another industry. For example: I owned a John Deere dealership with 15 employees and X sales; I am buying a contracting business with 15 employees and similar sales. Be sure to have your resume up to date and be prepared for somewhat of an interview.
The process has not been difficult so far but is time consuming. I’ve spent a pretty fair amount of time on the phone and in front of my computer answering questions and chasing documents. Do yourself a favor and buy a printer/scanner/copier with auto document feed. You will be filling out lots of applications, some of which have 20+ pages and it’s much faster to scan them and email them than fax them. It’s also helpful to have them on your computer so you can quickly find them when you get yet another call.
Most small business loans are backed by the SBA. You can find a list of lenders at www.sba.gov/localresources/index.html select your state and then SBA Lenders. I personally prefer fixed rates since historically prime has reached 18+%. I have found that Wachovia, Wells Fargo, and one of my regional banks offer fixed rates.
Lenders will require at least three years of tax returns for the business and yourself to even begin so have them available. They will also require the business financials. Something else to consider, do the financials show a true picture of how the business is performing? The current owner of the business I am purchasing has used a few different strategies to offset his tax liability so the tax returns show less than true profit. Fortunately, my broker has created a spreadsheet that shows exactly what has been done which more than satisfied the lender. This particular lender said that he and his lending institution are more than happy to recognize justifiable tax strategies but he won't talk to people who are purchasing businesses that have unjustifiable tax strategies such as leasing Hummers as "company vehicles" and paying for the kid's gas while he is in college.
Lenders want to see a business plan with reasonable sale/profit projections of 3-5%. Unrealistic projections get red flagged so don't put down that your business is going to grow 80% next year. This seems to be more of a test of a buyer's knowledge of the type of business being bought and what it can realistically do. Other than that he said it's pretty worthless since no one can truly predict exactly what a business will do next year so it just goes into the file.
Be prepared to write the lender a refundable deposit of $1,500-2,500 to process the loan. Normally your personal credit check will cost the lender $50-70 and the rest is applied to the loan. This deposit is designed to eliminate time wasters.
Once the lender is comfortable with the financial side of the transaction, they will want to know that you have industry experience or experience of a similar level in another industry. For example: I owned a John Deere dealership with 15 employees and X sales; I am buying a contracting business with 15 employees and similar sales. Be sure to have your resume up to date and be prepared for somewhat of an interview.
The process has not been difficult so far but is time consuming. I’ve spent a pretty fair amount of time on the phone and in front of my computer answering questions and chasing documents. Do yourself a favor and buy a printer/scanner/copier with auto document feed. You will be filling out lots of applications, some of which have 20+ pages and it’s much faster to scan them and email them than fax them. It’s also helpful to have them on your computer so you can quickly find them when you get yet another call.
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