Financing the sale of a business | Orange County Business Broker

Financing the Sale of Your Business

Generally there are two forms of financing for the sale of a business, an SBA loan, a Seller Note or many cases both. While every business owner’s dream is to sell their business for “cash”, few transactions are for all cash other than for very small businesses. With that said, is it possible to get all cash for the sale of your business? If it qualifies for SBA financing the answer is yes.

Why SBA Financing is a Great Deal for Buyers & Sellers

We love SBA financing for a number of reasons, first and foremost the SBA will finance 75% of the business acquisition (if it qualifies). This means a buyer can purchase a business for 25% down and finance the rest over 10 years at rates that are typically prime + 2.5%. With a 10 year term and low interest rates this improves the cash flow for the buyer and makes the business very attractive for prospective buyers.

If the seller is willing to carry for example a note for 10% of the transaction value in conjunction with an SBA loan for 75% of the value, this drops the down payment to just 15%. As an example, a buyer purchasing a business for $1,000,000 would be able to buy it with just $150,000 down and the seller would get $900,000 at closing (less closing costs) and have a $100,000 seller note.

This type of financing structure puts the business within reach of more buyers and makes it much more attractive than businesses with no SBA financing.

We work with a number of SBA lenders, Contact Us about getting your business pre-qualified for SBA financing!

Read More About SBA Financing

But I want Cash for My Business!

Every seller naturally wants a cash deal, to walk away with no worries and a fat bank account. This is a nice dream, but not reality other than for extremely small transactions. There are a number of reasons this seldom happens

3 Reasons Why Cash Sales Rarely Happen

  1. Buyers want a seller note as an assurance from the seller that the business is what they claim it is and future revenues and earnings are reliable.
  2. Conversely buyers distrust a seller that wants all cash and refuses to carry a note.
  3. Cash transactions don’t make financial sense to the buyer – they are better off finding a business that offers financing, either seller note, SBA, or both. Financing leverages the buyer’s cash so they can buy a bigger business with less cash upfront (less down payment).