How to Buy a business without Collateral
It is a fact that there are an immense number of fresh graduates who pass out from the prestigious universities of the world on an annual basis. They come to the market with a dream of setting up their own business venture, but most of them quit their dream of soaring the horizons even before spreading their wings. Reason? They are unable to get loans from the banks simply because they don’t have any collateral in exchange.
The things are not exceptional when the fresh graduates try buying a business. The complications remain the same and probably with no solution to be seen.
So where does the solution actually exists?
Here, the step taken by the recent graduates from an esteemed University could be noteworthy. They went for SBA 7 (a) loan offered by the Exchange Bank in Santa Rosa, CA and succeeded in the purchase of a business from a withdrawing owner in the year 2014. The loan comprised of 50% of the purchase value, out of which they raised 25% via the funding aid offered by an investor group active in the private sector of the American market. The 20% of the purchase value was improvised with seller financing.
So why the small business administration of a reputed bank in California has shown trust in these recent graduates? Has it been a professional and trustworthy gesture shown in respect to the promising vision of these youngsters?
No! Actually the concept is pretty simple. On the financial terms, it is a prudent choice. As the graduates were buying a business for sale, which is there in the market for the decades, it will not be hard for it to maintain a robust cash flow. Even in the adverse scenario of recession, it will not be hard for the venture to survive in contrary to a newly set-up firm.
While making the purchase, along with the land and the infra they also retain the key employees associated with the business. It curtails the expenditure that are inevitable during the inception of the newly set-up venture. The premier banks like the Exchange Bank of Santa Rosa consider these opportunities of loan sanctioning pretty handy because 34% of acquisition deals (that is more than one-third) are made when the existing owners of the concerned business are retiring from the field. It has been mentioned in the report of the market survey released by IBBA (International Business Brokers Association), Pepperdine Private Capital Market Project, and M&A Source.
This is one of the tactics that are usually employed by the major banks in the sectors. It usually generates a win-win situation for both the bank and the buyer.
Recession time is the best time!
Most of the business houses and small and medium scale enterprises may disagree with this statement, but it is quite true. If you know how to do a SWOT analysis and explore the opportunities, then the phase of the recession may lead to the purchase of a decent business in the market.
But before finalizing the deal, there are a few things that a sagacious buyer of the business always keeps in mind.
- Do not forget to ask the P & L account of the business in the last 12-36 months.
- Always keep an eye on the hidden cuts in the expenses. Most of the business owners tend to showcase a better profit by cutting down payrolls, advertising, and marketing expenses. A thorough review of the balance sheet will ensure the actual stand of the inventory.
- Have a walk-through the current customer base of the company. As the sales are declining, you can negotiate the price accordingly and formulate a new marketing and sales plan to retain the existing base of the customers.
- You should know how to negotiate the performance based deal as well to the further possible extent. Never get frightened by the business brokers hired by the seller. Hold your ground and finalize the deal right in your favor.
The purchase of a business is a very critical step. There are certainly good options that will aid you without collateral, but it is up to you how you negotiate and re-negotiate and fetch the better out of the best!