Funding

Buying a business takes a lot more than credit card swipes and fancy signatures.

It would be a lot easier if it worked that way, but if buying a business was easy, everyone would do it.

The financing of funds to complete a deal takes a lot of communication.

Communication between the buyer, the seller, the brokers, and the bank is essential, and without it, deals can fall apart.

On today’s episode of Deal Closers - A Tech & Internet M&A Discussion, we’re talking about funding, and Jason and Ron from Websiteclosers.com explain the different ways these deals are made.

[03:54] SBA loans are loans funded through the Small Business Administration, and it’s a method Jason and Ron recommend to a lot of the buyers:

• A lot of people tend to go to family and friends and use their own personal financials;
• They don't realize that instead of doing all of those things, or in addition to doing all of those things, they can also go to the SBA - this route is beautiful for deals under $5 million because you amortize it over 10 years, the interest rate is very nice, very favorable for the M&A space, and you've got this other set of eyes out there that's also doing an underwriting process with you alongside.

[07:12] SBA is a good path for deals under $5 million but for situations that are more expensive, there are alternative options to consider:

• We also help buyers with private equity groups and family offices that are looking to leverage as they’re doing those deals;
• There are different ways to fund these deals, it really kind of depends on the deal size;
• As you get up into the 8 figure transactions, one financing model that we see is having a sponsor out in the capital markets.

[09:44] There are different forms of purchasing deals under $5 million:

• One is SBA – that’s where we push everyone;
• Another one is cash deals – we tend to find that people that do use cash, are saying, “I don’t have to go to a bank, you don’t have to wait, I can close quickly – in return, I want a lower price.” And sometimes, that’s attractive to our seller so they will actually take the cash deal and a lower price.

[14:32] Do buyers commonly come in with their finances in place already? And if not, what kind of help do you provide in that aspect?

• Oftentimes, when they come in, we look at the financials, we refer them to a partner and allow them to come in and do a clean-up of the books;
• There are times when someone will come in and they've literally done nothing for years;
• There are others that from the very beginning, they'll have an accountant or a CPA that's handling their financials on a monthly basis so everything is all nice and fluid and comfortable - but that's rare.

[16:45] How the seller’s expectations factor into the funding methods chosen?

• When it comes to the sellers, a seller has one main goal - how much cash can they get at closing. It's very rare that they're looking for anything other than that;
• We know everything from A-Z that a bank is looking for and we make it as easy as possible, every step of the way;
• Seller's expectations are really a very important part of this whole thing. Usually, we have to bring them down to reality.

[21:37] There is no deal if finances are not in order.

• We understand this process so well, so in-depth, that we really have a flow chart of what happens per week, every step of the way.
• I think it's really important to explain the process from beginning to end to both sides so that expectations can be met;
• Once the funding mechanism has been chosen, we have every step of the way what has to happen next in order to get to the finish line, according to the closing date that we've written into the Asset Purchase Agreement.

Resources:

• websiteclosers.com