Forums: Discussions for entrepreneurs and small business.

I am looking at buying a company.  It's been running for 12 years, has 12 employees a General Manager, and strong numbers.  Problem is I'm short 150k.  The seller will finance some of it (probably 30%), the bank the rest, and I need to come up with 200k (got 150k left.)  At 12% I can pay back the investors in 2 years.  I'm posting because I had an investor, but they pulled out just because it's not their normal type of investment they got cold feet.  I'm not sure where to go from here.  I have some prospects and I'm hoping they pull through but I'm kind a little further behind than I'd like now for everything.  Any advice?

Doug,

I'd need more details to provide specific answers - but some possibilities that come to mind are:

1. If the "strong numbers" will support it - find a different lender that can and will loan a higher LTV. The sellers portion should cover the remainder
2. Acquire capital from private investors through a private sale of a security (often called a private placement)
3. Tapping into your assets
4. Securing a private loan to cover the needed amount.

If you want to discuss the specifics of your situation, send me a pm or contact e directly.

 

Robertj

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

Your math is a little confusing. Is the seller going to finance 30% of the entire deal or just 30% of $150,000? Also, you’re saying that you’re short $200,000; however, later you’re also indicating that you “got $150,000” left. Does this mean you’re short $50,000?

Whatever the case may be, raising $200,000 or $50,000 isn’t worth looking into equity financing. The deal is just way too small. Maybe you’re better off restructuring the financing for the entire deal. Without knowing more about the details of the deal it will be very hard to provide you with qualified guidance in this matter.

If the deal is worth it, try pulling your investor back in by sweetening his deal. Another option is leaning a little harder on the seller to increase the share of financing. Having to realize that the deal may otherwise fall apart may be a motivating factor.

If you want to discuss your project in greater detail, please feel free to send me a PM and I will see if you can give you a few more pointers.

I hope this helps.

Mark

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Jackson Steiner
http://www.JacksonSteiner.com

Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.
http://www.Publications.FastVentures.com

Sorry, I was a bit unclear on that, and it has changed a bit since then, so (these numbers still aren't final.  I'm hoping to have the seller carry more but negotiations aren't done);

total purchase price: 1 million

Seller funding: 30% (300,000)

SBA/Bank Financing: 60% (600,000)

Down Payment: 10% (100,000) <<<

I have some a small amount of money (10,000) but want to keep that for living expenses and backup right now, so I am raising the 100,000.  I've raised 50k, leaving 50k more to raise.

One idea a friend told me I'm sure is illegal is having the seller lend me that money for the down payment and say that I'll pay him back plus some extra because of it.  I can't think of the term for that, but I'm pretty sure no one allows that.  Nonetheless it's would be a solution otherwise.

Hoping this makes more sense then my last post.  I've been a bit overwhelmed by all of this.

There is nothing illegal about the seller taking back an additional note as to the sale. However, if you're suggesting that this will be a "side agreement" that the bank is unaware of, then yes, that's a problem.

The SBA is going to require 10% down. The bank is going to want to see that you have money invested so that if things go bad, you are less likely to walk away. If you misrepresent this to the bank, then the bank may of a case against you.

I would suggest that you follow through with a legal advisor as to the transaction.

Ed Baloga, CPA / MBA
Principal CFO
Baloga Associates
ebaloga@baloga-associates.com
www.twitter.com/edbaloga 

Doug,

Based upon your latest information -I'd look for a lender that will go beyond the 60% LTV. Depending upon the specifics of your deal - it could be possible.

 

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

You have $10K in the bank, the economy is in the toliet and you're borrowing at 12% to buy a business.

I think you should stick with employment not go into business.

Robertj, FastVentures, and Baloga I appreciate your input.  Robert - do you have any suggestions of institutions that would loan at a higher rate?  I'm working with Wells Fargo and the SBA and didn't think I could really get a much better option than that.

In other news I may have the money rounded up.  I have a couple people looking at it right now.  I can pay back the investors within the first year, and with keeping the management of the company on (with the exception of the owner of course) I think it is a pretty low risk investment.

Of course as RichSun so tactfully put, 2009 hasn't created the most ideal circumstances for me.