Benefits of Business Acquisition
Most prospective business owners travel down one of two paths; starting up a business from scratch or purchasing an existing business. For many, purchasing an established and historically profitable business may be a more advantageous path to business ownership. Purchasing an existing business presents many benefits to the prospective business owner over a startup such as:
- Well established brand & reputation in market
- Established customer base with strong relationship between company & customer
- Seasoned team of employees that are familiar with the operation & clients
- Historical financials that can be reviewed to understand past performance, profitability, weaknesses and areas of opportunity
- Potential for seller to provide assistance during early months of transition1
Benefits of Partner Buyout or Acquisition by Key Employee(s)
Whether you are a partial owner and want to buyout a partner to gain sole ownership, or you are an employee seeking to buy from the current owner, you already have an advantage over the average buyer; you know the business!
Your personal knowledge of the operations, relationship with vendors, customer, and employees are why you may be the most qualified candidate to run the business. Sellers are also usually more inclined to sell to their valued employee(s) over a stranger.
Benefits of SBA Financing with VelocitySBA
A large proportion of small business acquisitions are completed with the assistance of SBA financing for a number of key benefits to the future business owner. Some of the benefits of financing with VelocitySBA to purchase a business versus conventional financing are:
- Longer Term – Usually 10 years versus a 5-year term conventionally
- Lower monthly payment – The longer amortization equates to a lower monthly payment, so the business owner has more free cash flow each month. This additional cash flow can be used to support operating needs that may be critical especially early on into the transition of ownership.
- Lower down payment – SBA allows as little as 10% down2 where conventional loans may require as much as 50%.
- No balloon payment – As a fully amortized loan, the SBA loan would be fully paid off with on the on-time regular monthly payments at the end of the term whereas many conventional options may require a larger lump sum balloon payment at the end of the term.
As a lending organization dedicated to small business financing, VelocitySBA team of experts has extensive experience with business acquisition transactions. Your VelocitySBA representatives will work more quickly to process your financing request and can provide the support you need to make the process of becoming a business owner an easy and positive experience.
Keys to success
One common attribute of many successful business buyers is having relevant industry experience or skillsets that can be directly applied to the business being purchased. That is why it is important to consider how your own background can contribute to the business you are seeking to purchase and why it is a key component that VelocitySBA seeks to understand when you apply for financing.
Sellers of a business are also more inclined to accept an offer from a buyer who is more qualified. They want to make sure the business they have built continues to be successful and that their employees & customers are taken care of.
Additionally, support systems such as a well-established franchise, seller support during transition, and retention of employees are other factors that can contribute to a smooth change in ownership and ongoing success of the business.
Your VelocitySBA business relationship manager will work with you to understand all these factors to ensure we recognize the full potential of your business acquisition or partner buyout transaction. We want you to be successful and will work to structure financing that makes the most sense and works towards reaching your business goals.
1 Seller may not remain as an officer, director, stockholder or key employee of the business. If a short transitional period is needed, the small business may contract with the seller for a period not to exceed 12 months including any extensions.
2 At a minimum, SBA considers an equity injection of at least ten percent of the total project costs to be necessary for such transactions. Seller debt may not be considered as part of the equity injection unless it is on full standby for the life of the SBA loan and it does not exceed half of the required equity injection.