Smart Financing for Business Sales

Smart Financing for Business Sales
You found the right business and want to move forward with a letter of intent, so how to finance the purchase? Even if you’ve been a customer of the bank for years and have a decent down payment, it is not guaranteed that it will finance you.


You might consider using your assets, such as your house, as collateral for a business loan. Although in theory this might sound like a good option, using real estate can be complicated. It will require an appraisal and you might have to pay additional taxes if the valuation comes higher than what it was previously appraised at, resulting in less money in the end. Also, you may not want to put your family home at risk for a new business venture. Another financing option is the Canada Small Business Loan, also known as the CSBL. This option also has its downside because you can only borrow so much under the plan.


An experienced advisor, however, can help to make these alternative financing options work for you. He or she can find ways to alleviate the added taxes by structuring a two-part sale or establishing a new corporation to make financing more money possible with the CSBL. The two companies would later be merged into one, and in the end, the buyer would get much needed financing and the seller would net more from the deal.


When a small business is sold, creative financing is possible. Your advisor can arrange a deal with significant financing and equity coming from the seller and the buyer respectively. Additional funds could come from the bank to complete the funding of the transaction and for working capital. To protect himself, the seller would require that the buyer carry insurance protection and submit quarterly financial reports. This stipulation would remain in place until the loan is paid in full. These types of deals are often quite successful because they give the buyer more confidence and assurance that the seller is being honest about the future of the business and will be there to act as a consultant or advisor if needed.


Contact Mergex, an experienced firm to beaccompanied and to know different strategies.