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Financing a Business

Need your advice, as they are many experts here.
Im the manager of a company, I’ve been working here for 10 yrs now, and I think its time to find my own company.
I know many people don’t invest in this economy, and its far better a steady job than to invest.
But for my future im willing to give it a shot.
Right now I earn about 80k a year, and ive been saving for business capital for a while
My question is ??
Im looking a business that its selling right now for 2.1M, the owner is willing to finance 40%, that’s about $840k x 6yrs @ 6% = 14k monthly, plus bank loan payment . As in tax papers and company records, its Net Income is about 700k.
In this case, If i was looking on a Bank Loan, and they ask for 20 to 30% of Down payment, can that part of the seller financing count as part of the down payment??
Ive always thought about this and i just wanted you opinion and your suggestions..
Best Regards

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Answers (5)
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9 hours ago
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Hi Don,
Why do you say i have history there??
The business im looking to buy is not
The one im working right now!

If the seller is financing 840k and i put 10% of
That remaining 1.2M, thats about 120k, its almost
1M Down.. Bank will lend 54% of the total cost of the
Business; and at least i have some capital for cashflow.
Credit Score Wise, im at 754Fico, i hope this is enough
For the bank.
So if you though i wanted to buy the business that im working in;
Well that means im a not in a good position, cause i came like you
Say out of the streets..
Let me know your thoughts; im going to the bank with the business
Plan, all my paperwork and my straight offer!
Thanks for your kind advice!

Apr 5, 2013
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The BAF Group LLC

Jorge, 10% ought to work. But don't ask; walk in with a finished Business Plan and tell them, this is it! The more secure and confident you are, the more serious they will take you. You have history there. You are in a better position than someone off the street.

Let me know how it goes, please.

Apr 4, 2013
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Hi Don,
Thanks for the information, yes my accountant was the one that looked
A the tax returns for the last 5 years. Andfor now everything
Looks good.
In terms of the downpayment, looking at this numbers i said!
How much skin do you think bank will ask??
Do you think a 10% of the remaining 1.2M could work??
Making it a sum from seller and me almost 1M..
Or what do you think i should ask or prepare to add for downpayment?
I want to stay with some initial capital and cashflow.
Thanks Don youve been great!

Apr 4, 2013
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The BAF Group LLC

Jorge, good luck! As far as being able to look at and evaluate the business, we would not be able to confidently and competently do that without actually seeing Tax Returns for the past three (3) years. But you really want your own Accountant to do that, anyway.

As for your question about the Down Payment, the Lender will want to see that you have money in the deal; however, the majority of Lenders will allow you to use the Seller's Note for part of that Down Payment, and most will actually prefer it. Usually, for whatever amount they require as a Down Payment, they would want you to put in half of that. That is not always the case, but it is the norm.

There are two (2) cautions. First, make certain that you can afford to make monthly payments on both Notes, out of the projected Cash Flow or Net. Getting too much in hock, without sufficient, remaining Cash Flow to maintain the business, account for periodic down times or need for funding repairs and such, is the most common failure of small businesses.

Second, the real difficulty is that the Lender may want the Seller to hold a note that has an equal term to its own. So, if the SBA is going to make you a Loan on a 10-year term, it may require the Seller to hold a note for the same 10 years. That could be a problem if the Seller is stuck only on a 6-year term, and you will want to make certain of that, before you go too much further. One way to combat that is to ask the Seller to take a loan based on a 10-year term, with a balloon payment at the end of the 6th year. Then, at the end of that 6th year, you would need to completely refinance the debt, which should not be a problem if you have had a good payment record and the business is continuing to be successful.

If you have a Seller that is being that accommodating, there are a lot of ways to go forward.

Apr 4, 2013