From the category archives: Certified Business Brokers News

Don't you wish financing a business could be easy? Well, keep these important tips and tools handy to have a smooth buying experience.

Earnouts - How and Why are They Used in a Business Acquisition?

An earnout is a type of payment agreement which is sometimes used in a business acquisition. Under an earnout agreement, the seller receives part of the purchase price up front, and additional funds over time. The terms of the earnout are written into the sales contract.

An earnout can be used for different reasons:

To tie the acquisition payout to future performance

An earnout, in a business acquisition context, is an arrangement in which the buyer doesn't pay the entire purchase price up front but agrees to pay a certain amount now and more later depending on how well the business performs in the future.

To bridge the pricing gap

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SBA Loans are Misunderstood These Days - Most Require Collateral

We get email alerts every other week or so from the SBA saying that the 7A guaranteed loan program for buying a business only requires a proven history of stable cash flow that can support the debt payments, which means that goodwill (an intangible asset) can be used as collateral. These SBA email updates also tout that banks using this loan will be backed by the SBA with a 90% guarantee. If the loan defaults, the bank would only be responsible for 10% of the default value, the government would cover the rest. However, this has not been the case in reality, just the opposite is true. Many banks are requiring a high-percentage collateralization of any SBA guaranteed loan in tangible assets such as real estate, equipment, inventory, and accounts receivable. The reason for this disconnect is that banks want more than just the government guarantee these days. They are being more careful and want more security. Many businesses do not have enough hard assets to cover a loan and real estate values aren't cutti ...

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Buy a Business Using Retirement Funds

Put your money to work! Invest it in your own business and let your money work for you! You can use cash from your 401(k) or IRA account to purchase a business without incurring early distribution penalties, with no taxes, no loan repayment, and no hassle. For example, a Texas resident using $100,000 from a qualified retirement fund can keep the extra 31% that would have been paid in taxes, leaving an additional $31,000 to fund the new business by adopting a transfer trust plan versus withdrawing the funds outright. With the adoption of a pension transfer trust, you are allowed to convert 401(k) and IRA funds into privately-held stock in your new business. Pension and tax advisors can provide all the specific components necessary to make sure the transaction is in compliance with all applicable IRS Code Sections, ERISA Law, and Department of Labor Letter Rulings. We can refer you to a reputable representative. For more complete information on using qualified retirement funds to purchase a business, ...

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Friends and Family: A Financing Option for Buying a Business

The first job facing many prospective business owners is rounding up the cash necessary to make the purchase. They may find that banks have made borrowing difficult (or all but impossible), and that even SBA loans have requirements too stringent to meet. One viable option is obtaining financing from the seller; another is to seek help from family and friends. Borrowing money from family members and/or friends is one of the most frequently-used methods of small business financing. The pluses are obvious--there is trust, familiarity, and a general comfort level when dealing with those you know. The drawbacks are self-evident as well: "doing business" with family and friends comes with cautionary notes of legendary proportions. Everybody knows that family ventures can be complex and stressful, stirring up "bad blood" and lingering ill will. However, by taking the right preventive steps, buyers can take advantage of friendly financial help. 1. Set up an informal meeting to introduce your ideas. This is t ...

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SBA Legislation Special Update

Extension of SBA Recovery Lending Programs Will Support $1.8 Billion in Small Business Lending Agency plans to restart Recovery loan approvals on March 10 WASHINGTON – President Barack Obama signed legislation Tuesday extending until March 28 the U.S. Small Business Administration’s ability to provide small business loans that are enhanced with special provisions of the American Recovery and Reinvestment Act (ARRA), including a higher guarantee of SBA-backed loans and a waiver of loan fees normally paid by borrowers. SBA estimates the additional funding will support about $1.8 billion in small business lending. New approvals of eligible loans with the higher guarantee and reduced fees made possible by the Recovery Act are expected to resume on March 10. Loan applications from borrowers in SBA’s Recovery Loan Queue will be funded first, followed by new loan applications. “These key loan programs have been successful in helping jump-start the economic recovery for America& ...

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SBA Update - What's Happening in Congress

On Thursday December 10th, Sens. Landrieu and Snowe introduced S. 2869, the Small Business Job Creation and Access to Capital Act. This new bill contains a series of measures that were separately introduced by Sens. Landrieu and Snowe earlier this year. The Senate Small Business Committee will mark up S. 2869 Thursday, December 17th. Highlights of the legislation include: Increase the loan limit on 7(a) loans from $2 million to $5 million. Increase the loan limit on 504 loans from $1.5 million to $5.5 million. Increase the loan limit on microloans from $35,000 to $50,000. Allow the 504 loan program to refinance short-term commercial real estate debt into, long-term, fixed rate loans. Extend the authorization to provide 90 percent guarantees on 7(a) loans and fee elimination for borrowers on 7(a) and 504 loans through December 31, 2010. Direct the SBA to create a website where small businesses can identify lenders in their communities. Increases the maximum guaran ...

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The Five C's of Credit Analysis for Getting a Loan for Buying a Business

If you are buying a business and plan to obtain financing from a lending institution, these five tips provided by Adeline Rem, Regional Vice President of Celtic Bank, will be helpful in getting your loan approved. 1. Capacity The capacity of the borrower to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships -- personal or commercial -- is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment. 2. Capital Capital is the money you personally have invested in the business and is an indication of how much you have at risk should the business fail. Prospective lenders and investors will expect you to have contributed from your own assets and to ...

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SBA Loans for Small Business Acquisitions Improving

The Small Business Administration today announced their support of the Federal Reserve Bank of New York and the Treasury Department to improve the TALF Program, which will help unclog the secondary market for asset-backed securities, including SBA 7(a) backed loans which is the vehicle used for small business acquisitions. “We are pleased that terms for SBA loans are continuing to improve, and TALF is moving into the implementation stage where loans will be made,” said SBA Acting Administrator Darryl K. Hairston. “SBA welcomes the recent announcement from TALF and supports its continued efforts to modify the terms to help unfreeze the secondary market for SBA loans, thus making it easier for our lending partners to make new loans to America’s small businesses.” “Three specific changes should be especially helpful to the secondary market for SBA loans. The lower collateral requirements for pools with longer expected lives; the creation of a federal funds-based rate; ...

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Private Equity Groups are Hunting for Business Acquisitions

Private Equity Groups have excess capital to invest and are looking for business acquisitions. One of the major market shifts for the acquisition of privately-held companies has been the growth in the number of Private Equity Groups (PEGs) over the last decade, they number in the thousands. PEGs have become key players in business acquisitions. They offer flexibility as a liquidity source, giving entrepreneurs the ability to take some cash off the table, recapitalize their company or simply sell and move on. Private equity refers to buyout groups that seek to acquire ongoing, profitable businesses that demonstrate growth potential. The private equity market had traditionally been restricted to acquiring larger companies. But increased competition for those larger operations, the greater growth potential of smaller firms, and an easier path to exiting the investment of smaller firms in the future have played a role in attracting PEGs to smaller companies. PEGs are typically organized as limit ...

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Buying or Selling a Business During Tough Times

With negative economic news grabbing the headlines in the United States, business owners may think it is not a good time to sell their company. But fortunately for owners looking to sell, that is not necessarily true. Business sales are still taking place with sellers capturing attractive prices and favorable terms, when the deal is structured properly. One of the the most important foundations of constructing a successful deal has always been a solid buyer, one that is creditworthy. Whether it is an individual, another company, or a Private Equity Group, qualifying criteria are demonstrated business acumen, significant assets to pledge as collateral, or a committed fund behind them. With a proven, credible buyer at the negotiating table, lenders are more likely to support the transaction. In today's environment, some seller financing should be expected to get the deal done. It is not uncommon during a tight economy that sellers must share the risks with the buyer and the lender in order to achieve ...

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