What Financing Options are available for Buyers in Florida?

Business owners in Florida, wanting to sell their business, assume it should be as easy for a business buyer to get financing to buy a business as it is to get financing to buy a home. Unfortunately, that is not the case.

There are only 4 Viable Sources for Financing to help buyers buy a business in Florida.

  1. SBA ( Small Business Administration) financing.
  2. Seller Financing
  3. Buyers borrow against their 401K/IRA plans
  4. A buyer uses home equity to get a 2nd mortgage (HELOC)

1. SBA Financing

The SBA is a US Government agency that encourages small business ownership by helping a buyer with good credit buy a business with only a 15% down payment.

Buying an SBA pre-qualified business is the absolute best way to buy a business for 5 reasons:

  1. SBA only requires a 15% down payment for buyer with good credit, reducing initial capital investment.
  2. Loan is for 10 years, 25 years if real estate is included.
  3. SBA has already conducted a due diligence examining 3 years tax returns determining that there is sufficient cash flow for a buyer to make the loan payments.
  4. Only about 20% of all listed businesses qualify for a SBA loan because of difficulty of pre-qualification for approval.
  5. A SBA loan allows you to buy a $1M business with a $500,000 cash flow for only $150,000 down.

2. Seller Financing

It’s a shocking fact that over 80% of all businesses that are listed for sale under $1million in Florida will require seller financing – or it won’t sell. Only about 20% of all listed businesses for sale will qualify for a SBA loan, the rest might require seller financing.

Lenders (Banks and credit unions)  will not loan money for the initial purchase of a business in Florida – PERIOD!

Most sellers find that hard to believe so I offer these analogies:

  • What happens when you don’t pay your mortgage? The bank forecloses on your home.
  • What happens if you don’t make your car payment? The bank repossesses your car.
  • If a bank loaned money to buy a pizza place and the buyer defaults – what does the bank do with the pizza place?

A seller is not required to offer seller financing,  but it greatly increases the chances of a quicker sale. Seller Financing will usually require a sizable down payment 0f at least 50%. Depending on the price of the business, a seller can require both a credit report and personal financial statement from the buyer requesting seller financing.

3. Borrow against their 401K/IRA plan

It is possible for a buyer to borrow against their 401K/IRA plan in order to buy a business. The program is called a ROBS (Roll Overs as a Business Startup) administered by specialized financing firms. The fee to set up a plan is about $5000 and requires strict compliance to rigid IRS rules to avoid penalties.

4. A second mortgage on a home 

If a buyer has sufficient equity in their home, a bank will loan the money to buy a business.

The loan is called a HELOC (Home Equity Line of Credit)