Petition to Save the SBA 7(a) Loan Program

Save Small Businesses & SBA 7(a) Loans

The U.S. Economy depends to a great extent on our small business community. The welfare of small businesses affects each and everyone of us directly or indirectly as this makes up 50% of our GDP.

The Payroll Protection Program (PPP), although necessary, as written in the bill, is depleting all available monies allocated for the standard SBA 7(a) loan program. This is causing a situation in which the program will soon run out of funds, with no further SBA 7(a) loans available through June 30, 2020.

Without the SBA 7(a) loan program, new business opportunities, expansion, and acquisitions could be greatly affected. If it is true, as many believe, that small businesses will lead us into an economic recovery, the absence of these loans could hamper the U.S.’s ability to have a rapid financial recovery and could potentially cause many small businesses to close their doors for good. We are petitioning for the reallocation of the source of the PPP funds in order to protect the resources originally intended to help all small business owners through the end of the government’s fiscal year, September 30, 2020.

In 2010, the SBA recognized the importance of small businesses by passing a recovery act allowing SBA lenders to receive a 90% guarantee on loans funded during the recovery period, while waiving all borrower fees. The resulting credit enhancement gave lenders incentive to provide small businesses with financing that they typically would not have entertained during an economic downturn. In addition, the waiving of borrower fees made it much more affordable for business owners. This provided many new jobs and stimulated the markets, shortening U.S. recovery time. This petition urges Congress to initiate and pass a new recovery act that includes the 90% SBA guarantee for loans made by lenders for at least through the end of 2020 as well as a waiver of the SBA guarantee fees for at least the same period.

-James Parker - Boss Group InternationalBoss Group International

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5 Tips on Financing the Purchase of an Existing Business

Purchasing an Existing Business?

Here are 5 tips to help you finance the acquisition

There are a number of methods you can use when financing the purchase of an existing business. Here are a few that we suggest you try.

Financing the purchase of an existing business

More businesses are being sold than ever before. In fact, a record number of small business owners are selling their companies. According to this data, the number of business listings increased by 8 percent from the prior quarter. 

In a world awash with excess capital and with demand for reliable cash flow returns on the rise, prices for existing businesses & assets have been on the rise.

Popular acquisition targets typically have reliable, recurring revenue and cash flow, with an established brand and loyal customer base. With prices continuing to trend up, you’ll need to have your ducks in a row before you decide on the best way to finance an acquisition.

Read on for a guide to financing the purchase of an existing business. Explore 5 tips for purchasing a business that is highly effective.

1. Apply for an SBA Loan

The United States Small Business Administration (SBA) is a great resource for entrepreneurs. They work with lenders across the nation to guarantee loans against default.

Lenders are willing to take on more financial risk due to the government’s backing. SBA loans offer more favorable terms and rates than conventional funding sources.

There are a number of different loan programs to apply for. The most popular are the 7(a), 504, and microloan programs.

2. Consider Seller Financing

In some deals, the seller is willing to finance a portion or all of the deal. The benefit to the seller is that they can turn a greater profit.

There are also a number of advantages to the buyer. Perhaps most important is the ease of access to capital.

Also, another benefit is the speed of the financing deal. Seller financing is proven to be a faster alternative than conventional loans.

3. Make a Sizable Down Payment

A significant down payment is an effective method for reducing company risk. Like purchasing any asset, a down payment improves your financial position in the company. It reduces the amount of interest that you will pay over the life of the loan.

For business acquisitions, a large down payment is required. While mortgages require 20 percent, a business purchase usually takes even more.

The more cash you bring to the table the better. Many small business owners use personal funds for a down payment. For larger acquisitions, the down payment may require multiple investors pooling their resources together.

4. Angel Investors

There are increasingly common scenarios today where wealthy investors, feeling flush after 10 years of public market gains and looking to diversify into something reliable & attractive going forward, are interested in financing entrepreneurship through acquisition (ETA) as a viable investment vehicle. If you can sell those types of investors on your personal “why” story and your credentials to run a business, this can be a great option if you can get access.

5. Getting Creative

To finalize a business purchase, sometimes you have to get creative. These cases may call for a leveraged buyout or assumption of debt.

In a leveraged buyout, you trade-off existing assets in lieu of capital. An assumption of debt means that you are acquiring the company’s liabilities as well as their assets.

A Recap of Financing the Purchase of an Existing Business

Starting a business from scratch is hard work and risky. Many entrepreneurs choose to purchase an existing business instead and fund their entrepreneurial efforts from the existing cash flows of an operational business.

This option allows an entrepreneur to acquire a proven business model. Entrepreneurs turn to methods like SBA or seller financing to close a deal. If you want to learn more about financing the purchase of an existing business, Login to get matched.

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Spend Money to Make It: Financing Options for Buying a Business

Want To Buy A Business?

Financing Options For Buying A Business

If you've found the business you want to purchase, but aren't sure how to pay for it then this guide is for you. Keep reading to get the money you need.

Financing options for buying a business:

It doesn't matter if you're a solopreneur or a budding business owner who will employ hundreds. Starting a business requires capital. 

On average in the United States, it costs a whopping $30,000 to start a small business from scratch. That's averaging out the big guys with the little guys. You can imagine how much some entrepreneurs might be risking on their startups.

If you're unsure how much it will cost to start your business, you can check the estimated cost of your startup with Entrepreneur.com's calculator tool. There's more to consider than you might think.

Once you know how much you need, how are you going to get the money? Like dad says, "money doesn't grow on trees." Let's explore some financing options for buying a business and get you on your way to success.

Angel Investors

If you can snag an angel investor, you're in great hands. These guys know the risk of a budding startup and are willing to take it. They typically own more than $1M in assets which affords wriggle room for more risky investments.

The biggest downside to an angel investor is their need for even more detailed plans. You need to convince them of your credibility. Just because they are willing to take risks doesn't mean they're wanting to throw their money in a hole.

Do your research. Gather competition analysis, create detailed sales and marketing plans. Essentially, show your expertise in your market. 

Your idea needs longevity. If you're just sniffing out a trend but don't know how your product or service will fare in the long run, you won't attract an angel investor.

Lastly, be passionate. If you truly believe in your vision, that's infectious. If you've done your research and your idea has a long half-life, go all-in. Your ardent enthusiasm will help lubricate their pockets.

Micro-lending

If you've ruined your credit on previous passion projects, you may not be able to get a traditional loan. If you really think your business will take off, you might try a microloan. 

Micro-lenders are another group of risk-takers. But the return on their risk is higher. They charge a higher interest than a typical loan. 

How much higher? You could see APR as high as 30% in some cases, although that's rare. No need for collateral either which balances out the high interest rates.

One such example of micro-lending is peer-to-peer lending. Cutting out the gatekeepers gives more people access to small business funds than traditional means provide. 

A few examples of P2P lending companies: 

• Upstart: a group of ex-Googlers started a platform that judges borrowers not on FICO score but on education, academic performance, and work history.

• Funding Circle: After the founder's loan was rejected for the 96th time, they created Funding Circle for U.S. and U.K. small business owners.

• Prosper Marketplace, Inc.: This is the original U.S. P2P marketplace. It now serves over 800,000 people.

A Few Other Financing Options for Buying a Business

There are a few more financing options for buying a business outside of traditional loans from either the government or the bank. Self-funding is one of them. Tap into your 401ks, use a credit card if you have a large credit reserve, or start a crowdfunding campaign (that last needs a previously existing fan base or really great marketing). 

If you're ready to get financed, let us know. We'll show you how it's done. 

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11 Critical Things to Grasp Before Purchasing a Franchise

Buy a Franchise?

Must know 11 vital points before you purchase a franchise

When you own a franchise, you can get into business for yourself and not by yourself. An owner of a franchise will operate by selling services or products that are established and those that have significant brand recognition.  Apart from the trademark, service, and product, a franchise also comprises a complete method of conducting the business-like operation manuals and marketing plan. Managing a franchise will increase the chances of being successful in your business since you will be leveraging a business model that is proven and benefits from the available customer base that can take years to grow using your idea.

Most people are known to make the mistake of thinking that franchises are a small business in a box and they do falsely believe that most of the franchises do have a much lower failure rate when compared to other types of companies which is never right. Just like the different types of businesses, up to 60% of franchises will most likely be out of business in the next two years.

Hence, if you do not have plans for purchasing a franchise, you will have to prepare yourself. While such business types are known to offer one with everything that you need to get started together with training yourself and your team, running them has never been easy.  You will have to obtain the right amount of cash reserve to get started, especially when you want to venture into the food franchise. For instance, you will need to have up to 2 million in liquidity for you to apply in becoming a franchisee of any significant food franchise like Qdoba Grill or McDonald’s. The majority of the franchises will be required to give a specific amount to help in the advertisement.

 Things to Consider Before Purchasing a Franchise

Putting aside some of the risks, purchasing a franchise can be an excellent way of owning your own business and enjoying all the perks that come with it. Provided you do it in a smart and calculated way. 

 1.      Ensure You Do Thorough Homework

You will have to educate yourself. It is essential that you know about the business and industry you want to get. Take your time and interview the franchisor thoroughly. In most cases, they will always introduce you to the individuals who will be of help when you want to sell a business.   Feel free to ask questions concerning the pre-opening support, construction, design, training, financing, site selection, license boundaries, and grand opening program.

 2.      Assess your strength and Style of Work

You need to ask yourself how you feel when you carry out the same task every time.  Are you on good terms with other people? What’s your feeling when you perform business-to-business sales?  If you have a negative attitude towards purchases, you will always have trouble managing any business. However, if you are not on good terms with other people, you will always require a partner to help you handle the business side. Ensure you are still honest with yourself concerning your weaknesses and strengths.  Choose approximately three individuals whom you trust and ask them about your weaknesses and strengths. It is advisable that you go for a business which you have some experience. Never buy a business franchise just because you like eating. Purchase a restaurant because you do have lots of experience in the management and servicing of food.

 3.      Check the Fees

Apart from the initial franchise fee, most franchise opportunities will always be forced to pay for advertising and royalties fees.  We also have the opening day expenses which occur when the headquarters need you to give away the free stuff and carry out special promotions. 

It is vital that Franchisees be very careful to balance the restrictions/ requirements with their capability of managing a business.  Having a system-wide scandal can make your franchise fail to perform well.

 4.      Search for the Dirt

Consider taking advantage of sites like Sean Kelly’s Unhappy Franchise and look for the negatives about the franchise you are about to buy. For instance, Kelly did run exposes on NY Bagel Cafe by listing down the high closure rate of the stores.

However, one store consultant Richard Taggert does disagree with a report by Kelly and instead says that the company only had some small closings in the past decade.

 5.      Ensure You Immediately Get Your Money

Starting a franchise and running it does involve vast sums of money, including the equipment cost and buy-in fee, fit-up construction and the location of the retail businesses, and upfront market costs.

You will require a minimum of one year operating with the capital before the business picks up not to mention the monies you will have used to help in building up the business. Even some of the most popular brands like Dunking required some time to pick on a new location.

 6.      Ensure you carefully read through the FDD Disclosure statement

The FDD, Franchise Disclosure Document refers to a document that offers information concerning the franchise system and the franchisor to the requirements of the franchise. No franchise is independent. Most franchisees are known to operate their businesses about the restrictions and procedures that have been set in the franchise agreement.  The limits do comprise of services and products offered the geographical boundary and pricing. The agreement also makes requirements on the total amount of working capital the franchise will require. The Franchise Disclosure Document is considered to be one of the most barriers for many people to becoming a franchise as they have no control over the person that can buy a franchise in their region.

 7.      Make use of the Franchise Lawyer

Not all business lawyers are in a position of negotiating a franchise agreement. You will require a professional. The Franchise license agreement refers to a contract that helps in describing the relationship between the franchisee and the franchisor, including the use of fees, trademarks, control, and support.

It is a written legal contract between the franchisee and the franchisor that informs each part on what they are required to do.

 8.      Keep Your Eyes on Franchise Consultants

The majority of the franchise consultants are known to be paid sale individuals for franchise owners. The consultants will always put on a tough sell to ensure you get signed to a franchise deal as fast as possible. It is because they will still receive some commission from the initial franchise fee. Always ask them to make their agreements clear before you sign so that they do not lie to you.

 9.      Franchise Work

It is essential that you always learn by doing. Before you sell a start-up or get into any business or purchase a franchise, it is crucial that you first consider working for one or search fund. After you have become an employee, you can see how things are working out for you and the amount of support you are getting from the franchisor. It can be compared to being an undercover boss, and it can quickly provide you with some valuable information. You need to work for a minimum of six months to get a real impression of how things work.

 10.  Seek Professional Support

As it had already been mentioned in hiring a franchise lawyer, it is also essential that you get an accountant to help you in running the numbers. You will always require a detailed analysis to help you understand what your cash outlays in a month.  Getting seasoned insurance can also be of great help.

 11.  Contact Other Franchisees

It is advisable that you reach out to other franchisees to help hear their story and see what pros and cons the business will encounter. One of the most important questions you will have to ask any franchise owner is the amount of support they will be able to get from the headquarters. You will also be interested in asking them if they will invest in the business again. It is vital that you target at least 12 franchises since most of the small business owners are very proud of them and will never admit if they did struggle financially.

Depending on the type of entrepreneurship through acquisition you go for, you will always invest between $150,000 and $1 million before you even start your business. Always do yourself a favor by trying to get any franchises that are not happy online before you commit yourself to any franchise agreement.

It is also essential for you to know if there is any discord on your franchisor. Always take advantage of the regional and national advertisement, training, operational assistance, operating procedures, management support, ongoing supervision, and access to bulk buying. Another valuable resource you will need to check before purchasing any franchise is the international Franchising Association guide.

Despite running a franchise being an excellent idea to help start your business, it is crucial you understand what you are about to get into, whom you are about to start it with, and your plans on how you will ensure it is successful.

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Tips on How to Buy a Business and Entrepreneurship Through Acquisition

Generally speaking, buying an established business is considered less risky than setting up your own business from scratch. As an entrepreneur, you won’t necessarily need to come up with a unique business idea, sell investors on an unproven concept, or incur the costs & risks of building a business up from the ground level. This practice of acquiring an already established business is known as entrepreneurship through acquisition.

It’s Still Risky To Buy a Business

buying something that is already stable, and profitable doesn’t mean risk won’t still be a huge issue as with any form of business ownership and entrepreneurship. The large majority of businesses out there publicly listed for sale are riddled with issues you’ll have to find, fix and tweak to grow the business and determine the right price to buy a business. In 2019, we’ve seen a huge surplus of small business owners out there hoping to sell under-performing or unprofitable businesses, or businesses that have not yet been optimized for sale and to encourage new ownership. This can be a great opportunity to acquire and grow an existing business, but as an investment, the operational risk is absolutely still there.

So how do you buy a business? To avoid getting married to a bad deal, you need to investigate thoroughly the business opportunities you’re thinking of pursuing. And a well-thought-out approach is necessary for you to find and secure a good business. To help you buy a profitable, well-managed business at the right price, think through the following steps.

Identify What Interests You

Entrepreneurs hoping to buy a business typically focus on existing financials and current cash flow, but it’s equally important to align yourself with a target company’s culture & lifestyle goals. You’ll be considerably happier if you purchase a business that’s already aligned with your ideal work culture, and in an industry with which you care about and already have experience. The more informed and fluent you are with the model of a particular business, industry trends, products, or services, the more inventive and successful your expansion plans will be. Ultimately, it boils down to embracing your passions, skills, experience, and interests, and throwing yourself in head-first the moment transfer of ownership occurs.

Determine Whether It Will Succeed or Not

Other than money, you’ll be spending time, energy, and hair follicles. Take into account the time and energy requirements you intend to take on for the day-to-day management of your new business. Some managers would rather be “grinding” all time, with their employees, but most investment-focused buyers will favor delegation and putting a capable management team in place, while they can focus on oversight and growth through acquisition. The number of resources you’ll need to invest will be influenced by the people and procedures already in place on the ground, and your prior understanding of the industry & relevant players.

Think of Why the Owner Is Selling the Business

If you’re about to purchase an enterprise, you’ll need to know precisely why the business is no longer working for its recent owner. There are many reasons why a company owner might want to sell a business. And you must get an honest outlook of how the operation is doing—without the seller’s influence.

Keep an eye on the existing business debts, condition of the equipment, competition, location problems, inventory problems, and any brand problems. Also, ensure you are updated on the current business’s achievements, failures, future opportunities, and possible challenges. Apart from speaking to the current owner about these issues, also engage employees, existing customers, neighboring companies, residents, and any relevant person you can think of.

Find a Business That Meets Your Budget and Personal Needs

Strategies to find the right business on the market that fits your needs include classified newspaper ads, online business-for-sale websites, and working with a business broker. Bear in mind that business brokers representing existing businesses for sale lawfully represent the seller. For this reason, be careful about passing on sensitive, potentially compromising information to them. Nevertheless, a business broker can help you decide on the kind of business you need, screen companies to eliminate businesses that are unlikely to sell, and assist you with the paperwork and help with negotiations to get a deal done.

Take into account that, if you involve a broker, a commission of 8%-15% will typically be required (paid by the seller), which can be well worth it for a business broker who works hard to facilitate an optimal, pain-free transaction… As a buyer, you’ll want to hire a good accountant to appraise business financials and make sure the cash flow number you are negotiating is accurate.  It’s also critical to have a competent business transaction, M&A-focused lawyer to represent you in negotiations and keep you informed about how the transaction will be executed, and how the delivery of the purchase price will be paid out over time.

Do Your Due Diligence

Assemble as much data as you can before buying an enterprise. This is one of the most critical steps on your way to becoming a business owner. In this period, work with your lawyer and accountant to guarantee you get all the facts and figures you need before proceeding.  This will help you ascertain that the business owner isn’t out to sell a startup for the price of a well-established business with a track record of reliable profits, revenues, and paying customers. Be aware; the seller will most likely require you to sign a non-disclosure agreement. This safeguards the seller should you decide not to buy the business after reviewing the documents. Below is a buy a business checklist of the materials that the seller should have prepared for you:

• Contracts and leases

• Business permits and licenses

• Business Financials

• Environmental regulations

• Zoning laws

• Certificate of good standing

• Condition of the inventories

• Organizational chart

• Letter of intent

• Code

Signing the Sales Agreement

After due diligence, comes the final verdict; whether to buy the business or not. In case you decide to go ahead with the purchase, the sales agreement is the “strap” that binds it all together. The agreement will spell out the final buying price, and every item you are buying, including intellectual property, tangible assets, intangible assets, and customer lists. Make sure you have a good legal representative to help you piece this list together.

Value the Business 

Whether you do it yourself or hire a professional accountant or certified valuation analyst (CVA), being aware of how businesses are valued is important for any buyer. Note that, before a business is transferred to the buyer, both the seller and the buyer have to settle on an agreed-upon price based on revenues & cash flows of the business. Often, buyers and sellers have their own unique processes for zeroing in an agreed-upon financial value, and this forms the basis of their negotiations. Some of the most common models of valuation for an existing business include the market approach, asset approach, and earnings approach.

Raise Funding Needed to Buy the Company

As soon as you’ve settled on a price, the next phase is to get the money. There are numerous distinct channels through which you can access the cash you need to buy the business. Are you aware of the different means of financing a new business acquisition? Some common financing options to business buyers include:

·         Personal financing

·         Debt financing

·         Search fund

·         Seller financing

Closing the Deal

It doesn’t matter you’ve reached an agreement on the terms of sale and price; the transaction could still be torpedoed based on terms, and how compensation will be distributed over time. A buyer can walk away from a negotiation at any time if a deal isn’t working for all parties, or if a seller decides to get greedy or back-track on previously agreed upon negotiation items.

Transitioning the Acquired Business

Typically, the seller will help you for a period of time as a consultant while you get up to speed with the day-to-day requirements of running the business. Make sure you clearly outline the responsibilities of each party in a written contract, and how the training will be conducted. Transitioning to new ownership can be a rough time for existing employees, and you want that to go as smoothly as possible. As a new owner, put mechanisms in place to make sure the business transition goes smoothly for all parties involved. Create time and speak to key personnel, suppliers, and customers before assuming day-to-day leadership. Let them know your plans for the company’s future, and pay close attention to existing stakeholders’ feedback and opinions as you move forward with the business and make incremental changes to the model, processes, and team.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.