Major Challenges To Securing A Business Acquisition Loan
Qualifying for a small business acquisition loan can be quite an ordeal to say the least.
If the business being sold is very profitable, the selling price will likely reflect a significant amount of goodwill which can be very difficult to finance.
Business acquisition loans, or change of control financing situations, can be extremely varied from case to case.
That being said, here are the major challenges you'll typically have to overcome to secure a small business acquisition loan.
Financing Goodwill
The definition of goodwill is the sale price minus the resale or liquidation value of business assets after any debts owing on the assets are paid off. It represents the future profit the business is expected to generate beyond the current value of the assets.
Most lenders have no interest in financing goodwill.
This effectively increases the amount of the down payment required to complete the sale and/or the acquisition of some financing from the vendor in the form of a vendor loan.
Vendor support and Vendor loans are a very common elements in the sale of a small business.
If they are not initially present in the conditions of sale, you may want to ask the vendor if they would consider providing support and financing.
There are some excellent reasons why asking the question could be well worth your time.
In order to receive the maximum possible sale price, which likely involves some amount of goodwill, the vendor will agree to finance part of the sale by allowing the buyer to pay a portion of the sale price over a defined period of time within a structured payment schedule.
The vendor may also offer transition assistance for a period of time to make sure the transition period is seamless.
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