of Suppliers of Business Financing. The survey collects hard data on business lending activities.
Industry Canada recently released its first survey results on the suppliers of business financing. The overall trend points to an increase in business lending activities by the Banks. This is good news if you are a business with tangible assets that can be easily securitized by the Banks.
However if you are buying a business in the service industry and/or business with little tangible assets, than you might just have locked yourself out from borrowing from the Banks. Also an established and profitable business will sell for more than just the value of its assets. So the question in Canada remains, how does a small business owner sell his business and ensure that the Buyer can obtain reasonable amount of financing from the Banks for his business. Unfortunately the answer today is this is NOT possible.
Here is what we know of small business sales. A typical buyer is willing and able to put down between 20 - 30% of the purchase price towards the price of the business. The Banks are often able to finance 40 - 50% of the purchase price secured against the assets of the business. And the GAP of 20 - 40% is financed by the Seller. This is just the reality of small business sales today and I do not see too many ways around it, especially if the Seller wants TOP dollars for his business. Of course he can choose to sell the business for a discount and get paid in all cash, typically this will be at 60 - 70% of the price.
Seller financing is a reality and a very important aspect of the sale of a small business. Why?
A seller who provides financing often will have a higher probability of successfully selling his/her business. In addition, seller financing often convey the message that the owner is confident that his/her business is capable of continuing to generate the cash flow to repay the loan after the sale. Other benefits of seller financing is also it may reduce your tax liability at the time of sale, provide you a higher value for your business since the portion that is financed also generates additional interest income.
So if you are planning to sell your business, my advise to you is to select a Business Sales intermediary who is able to price your business appropriately, who understands financing and able to help a buyer negotiate the most amount of financing for your business, and then securitize your financing portion appropriately with the Buyer.
For more information on different financing options when buying or selling a business please click here.