Identifying the best financing for the purchase of your business is an important and necessary consideration.  With the confusing range of terms and structures available with commercial financing today, it is of paramount importance to make the right decision for your business from the beginning.  Dovetail Business Advisors, Inc. can help.  Our extensive network of contacts includes both traditional and non-traditional financing, with a range of terms and options, to help secure the business of your dreams.

There are many factors to think about when considering your purchase and finding the appropriate financing.  We' ve identified some common questions and concerns in order to educate our clients during the process of finding the right business to purchase and making decisions regarding financing.

Business Plan
Potential lenders will expect to see a business plan that addresses, among other things: information about the business you are purchasing, industry analysis, past performance of the company and your projections for future performance, and a resume or bio for the prospective buyer(s) and key managers.  There are many resources available for assistance in preparing a business plan that will be attractive to financing sources.

Down Payment
It is important to know that lenders will require a down payment, usually in the form of cash, from the prospective buyer/borrower.  This will vary with the type of financing secured, as well as the type of business being purchased.  You should expect that most lenders will look for 20-30% down. 

Historical Performance of the Company and Personal Credit History
This is critical in obtaining financing.  A lender will look not only at the historical financial performance of the company being purchased, but also at the buyer's personal credit.  Knowing your personal credit history, and being prepared to explain it if necessary, will help you in securing a loan to purchase the business.  You should also be prepared to provide the three most recent tax returns for both the business, and you personally.

Collateral
Lenders will be interested in having enough collateral (assets attached to the loan) to cover the loan amount.  Although there are many ways to creatively finance deals, it is important to consider the assets available to pledge against the loan.  This might include your personal assets, as well as those of the company being purchased.  Be prepared to have a discussion about any  personal assets that are available, if necessary, to be pledged as collateral.

Length of Loan
There are many programs available that provide short-term, as well as long-term financing.  Matching your needs for financing to the type of available collateral and repayment capability of the business is important to the lender when structuring the deal.  The length of your loan will often be determined by the type of collateral pledged.  For instance, short-term assets such as accounts receivable, inventory, and equipment will have shorter repayment terms than a long-term asset like real estate.

Anticipate Future Needs
It is necessary to consider any short-term working capital you might need for the first few months after the purchase is complete.  It is not uncommon for issues to arise during this critical time that necessitate the input of additional cash or financing.  Working capital financing is often available along with the loan to purchase the business.  Preparing a plan to deal with these issues, whether it is having personal cash reserves available or access to additional financing, will ensure a smooth transition into your new business.  In analyzing your loan request, potential lenders will consider your action plan for addressing these issues. 

Keeping these thoughts in mind when securing financing to purchase your business, will give you the opportunity to smoothly transition into your new business.  Dovetail Business Advisors, Inc. can help by directing you to lenders and resources that best suit your needs.