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Deal fell through twice due to financing

Have 25 year old auto collision business with newer building. Building appraised at over 2 mil and business with FF&E has a value of 800K.Totalling 3mil plus. Buyers with downpayment of 300K can't get financed. Would rather not sell business separately because I'll be moving cross country. Current buyers have gotten discouraged and moved on.Any ideas on structuring the next deal?

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Answers (7)
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Waterway, Inc.
Nassau County, FL

Bob, sell the business and keep the building. I understand the cross country issue but you can utilize a portion of the monthly lease payment to contract with a local individual for maintenance, repair and overall monitoring of the site. Best solution for all. Give us a call if we can help with the listing and sale of the business.

Oct 26, 2009
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Don - Yes the downpayment was the issue. The bank wanted more than 10% down and wanted another 100-200k in the bank for cash flow. The other issue was the buyer. Even though he's been in the business all his life as a technician he had never managed or owned a business.If the buyer defaults and If the building doesn't get sold in the near future I still have to make the mortgage payments which could consume most if not all of the monies made on the sale of the business and I was not willing to do that.

Oct 13, 2009
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The BAF Group LLC
MD

Then first, exactly what was the problem? Was it the down payment, which is what is suspected? Or was there something more?

If it was the down payment, I would agree with Kevin. The advantage of holding the property is that it is the tangible asset. In a worse case scenario, if the new Buyers ruin the business and go bankrupt, you have been paid for that intantible part of the deal. You will not have to re-invent that business in order to get paid for it. The Real Estate is still there, still (theoretically) intact, so you can sell that at any time, regardless of what has occured with the business.

The only thing I might clarify or add to what Kevin said is that, for your sake, don't get sucked into a deal where you are stipulating a price for the Real Estate now. This is a lowpoint in most commercial markets, so any price you set today might be lower than it will be in five years, when it is time to sell the Property. You want to allow for the price "at market" for the time they actually sell.

Oct 13, 2009
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Don -Cash flow is fine and business was prequalified. This has not been an issue with any of the lenders. Was willing to finance 100k but think 300k is a little more then I want to risk.
Kevin - You make some interesting points especially your last paragraph. Either way it seems that I will be waiting.
Jon - Can you recommend any trade websites?
Thanks for all of your input.

Oct 12, 2009
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10% down is too little to get lenders to look the financing. Another thing is the value of the property itself which is about 2/3 of the total asking price and there is still minimal faith in property values. Property is long-term investment and doesn't generate revenue. If you really want to sell you have no choice but to seperate the two. Have the next seller check w/ the bank to see if they qualify for an SBA 504 loan for the business and most importantly, write an air-tight business plan. Lease the building to them on a lease/option with the stipulation that for 5 yrs. you won't sell to someone else and they can buy the building, and take a down payment w/ $X amount non-refundable. This is where you consult w/ an attorney on how to structure the deal, etc. At this point, legal guidance isn't an expense; it's an insurance policy. May not tell you what you WANT to hear, but they will tell you what you NEED to hear.

So now I guess the question is do you have the patience to sell now and wait a few years to get that $3M you're gunning for in a couple of installments, or do you have the time wait to sell in a few years and get it in one lump sum? Either way I wish you the best.

Oct 12, 2009
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The BAF Group LLC
MD

Bob, what is the Cash Flow of the business? Does the Cash Flow support the Price?

$300k down is probably too little (10%) on a deal of $3 million, in this credit market. Suppose you took a second note on $300k. That would give the deal a total of 20% down and then perhaps interest a bank or the SBA a little more. But that assumes (as I stated in the beginning,) that the business Cash Flow supports Debt Service of that size. That is the most fundamental question.

Have you taken the deal to an SBA lender and asked to have the business prequalified. That would tell you whether it is the pricing of business or some other difficulty on your side, or the Buyer himself that is the problem.

Oct 12, 2009
Jon Holmquist
Edgemaster Model 400 sharpener
President
Marion County, OR

Don't know what your situation is but look at trades. Could you use a business or home in another city?
Maybe some one is facing the same situation your and would love to be in your city with a good business. Good Luck, Jon at Edgemaster Mobile Sharpening

Oct 12, 2009

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