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.
- SBA (Small Business Administration) financing.
- Seller Financing
- Buyers borrow against their 401K/IRA plans
- 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:
- SBA only requires a 10% down payment for buyer with good credit, reducing initial capital investment.
- Loan is for 10 years, increased to 25 years if real estate is included.
- SBA has already conducted due diligence by examining three years’ worth of tax returns and determining that there is sufficient cash flow for a buyer to make the loan payments.
- Only about 20% of all listed businesses qualify for a SBA loan.
- A SBA loan allows you to buy a $1M business with about a $350,000 cash flow for only $100,000 down.
2. Seller Financing
It’s shocking that over 80% of all businesses listed for sale under $1 million in Florida will require seller financing—or they won’t sell. Only about 20% of all listed businesses for sale will qualify for an 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 shop 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 will usually 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)
Call me today if you’re looking to buy a business in Florida. (727) 946-1183.
