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A Smooth Transition in a Business Acquisition

Banks are leery of financing business purchases, especially for borrowers with marginal operating experience with the target business. Banks do not want to operate the business in order to secure repayment, because they are in the business of lending money – not operating business enterprises.

Most businesses have few hard assets to serve as collateral for loans, because their assets’ “worth” is in their continuous and profitable operation

Small Business Administration (SBA) backed loans are available to fund start-ups and business acquisitions. However, SBA loans can be difficult to obtain due to financial, operational and collateral issues. The buyer can investigate SBA loans through a local banker or visit SBA’s web site at for information on current lending requirements. Business acquisition loans are easier to obtain when combined with seller financing and earn-outs. Financing can be structured as a traditional loan with normal repayment schedules or as an earn-out with payments based upon future revenues. Seller financing and earn-outs provide the buyer assurance that the seller has a vested interest in the buyer’s ongoing business success.

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