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Business Acquisition Lender Suggestions

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White8

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Dec 6, 2007
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Salem, OR
Any suggestions for business acquisition lenders?

I have located at business that I would like to purchase with a price of $774k +inventory that has a good 20 year history and healthy cash flow. Since the business doesn't include real estate, the banks are willing to do an SBA loan at prime + 2 3/4 %with an adjustable rate. That seems to me to be pretty expensive money and I don't like the adjustable aspect. There must be other options out there.
 

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MJ DeMarco

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I always thought the SBA rates would be the best that you'd get vis-a-vie non-SBA offerings. I'd love to hear if anyone else has insight/experience as well.
 

mm2003

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Aug 15, 2007
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I have had some experience with SBA loans and independent lending companies. From my experience, SBA terms have been much more favorable and the prepayment penalties are much less. The SBA loans will typically require a decent amount of paperwork and take a little longer though. Independent lenders tend to focus on certain industries and feel more comfortable with less documentation due to there experience. There fees will be much higher and the rates will be more than SBA, but they are able to approve and close the transaction at a much faster pace. A few examples of the independent lenders are Butler Capital and GE financing.

A few things I can caution you on regarding the independent lenders are the following:

The lenders will offer you a five year loan with a balloon. The loan payment will be based on a 7 year amortization. Instead of the balloon payment being the principal amount owed after 60 months, the lender will include the interest and principal for the remaining 24 months in the balloon. Example: If your monthly principal and interest payment is $1000 the balloon will be $24,000.

They will also try to get you to pay first and last months payments at closing. In my opinion this is nothing more than a down payment. If they are basing your rate and term from a certain amount they should not require you to prepay the money.

Closing fees are typically much higher. The UCC searches, titles searches, etc.

I would strongly recommend an SBA fixed rate loan or a commercial business loan and would encourage you to check different banks. You will be surprised at how much different the rates can be. Your payments will not fluctuate and you know what to expect each month. With the variable rate the payment starts off high and then goes lower throughout the loan. Doesn’t make much sense to me why the banks would do this when you are starting out but that’s how they work. You may also want to check with your state or local agencies to see if they offer any financing assistance. Some states will offer incentives such as the Linked Deposit here in Ohio. I have attached a link below for an example. This one is based on job creation or retention. Last but not least, owner financing. The lenders will feel more comfortable with the deal and it shows the seller believes in his business. You have a good chance of not putting as much down as well. Hope this might help a bit.

http://www.tos.ohio.gov/content/view/601/348/
 
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White8

White8

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Dec 6, 2007
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Salem, OR
Thanks for the information. I'll definitely see if Oregon offers incentives like Ohio.

Since my last post, I have found better rates but the SBA does not offer fixed rates unless the business includes real estate which I may consider buying depending on the terms. I can certainly understand why a lender would want some real estate in the transaction but it would complicate matters for many business buyers.

Fortunately, the seller is willing to finance a portion of the business which makes me more comfortable as well as the lenders.
 

mm2003

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Aug 15, 2007
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Ohio
Glad to hear things are working out. I have had both variable and fixed rate loans backed by SBA without real estate involved. Maybe it might just be the lender that is not offering the fixed rate.
 
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White8

White8

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Dec 6, 2007
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Glad to hear things are working out. I have had both variable and fixed rate loans backed by SBA without real estate involved. Maybe it might just be the lender that is not offering the fixed rate.
Interesting. I'll have to push the lender to take a second look as well as do some more searching.

If I might ask, who is your lender?
 

mm2003

New Contributor
Aug 15, 2007
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Ohio
I have done business with both National City and Heartland Bank. Heartland is a local bank and National City is a bit larger. Both offer fixed SBA backed business loans.
 
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White8

White8

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Dec 6, 2007
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If anyone is following this thread:

Wachovia seems to be the best business lender. They offer reasonable fixed rates, good terms, and they will return your down payment in the form of a loan for operating capital. The rep also said that they have the lowest default rate of any SBA lender and will require the seller to sign statements certifying the accuracy of the business financials and will go after the seller if they supplied false information.

It sounds like they want to be sure the buyer is successful (so they collect on their loan) and are willing to help insure that success.
 

phlgirl

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Thank you for the information, White8 (I am following).

Today I met with a business broker (who has been in the business almost 20 years) and she said exactly the same thing - that Wachovia tends to be the most reasonable/creative when it comes to financing business loans.
 
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White8

White8

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Dec 6, 2007
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Thank you phlgirl.

It's good to get a second recommendation for them.
 

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