Owner Finance: The Best Way To Buy A Business Today

We wanted to revisit the issue of owner financing for one major reason:

It might just be the last way (and best way) for a budding entrepreneur to purchase a business these days.

Face it – banks are not lending to those seeking to purchase a business and, to even get them to look at your deal, you better have twice or three times the collateral in relation to the potential loan amount (regardless if the business is extremely profitable or not) – and just because they might look at your business loan request does not mean they will approve it.

Even non-bank lenders are not lending for the purchase of a business unless it comes with a huge amount of real estate and then they will only fund based on a small loan-to-value of that real estate.

That leaves two options for most people wanting to buy the business of their dreams:

1) Friends and Family (what some call Friends, Family or Fools). However, unless you have a very rich uncle, most of your friends and family are also facing financing restraints and either will not or cannot help you make a big purchase like buying a business.

2) Owner financing. Where the current owner of the business is willing to sell it to you on terms (meaning they – not the bank – hold the note).

This is what we will discuss here – as this might really be the only way left to purchase a business today.

Owner financing can benefit the purchaser (you) in several ways:

1) Easier to qualify for as you don’t have to jump through all the hoops that banks or lenders will make you jump through like cash flow analysis, property appraisals, debt-to-income ratios, personal financial statements, etc.

2) Better terms than most banks will offer – thus, saving the new owner (the purchaser) both time and money – not to mention less in regards to reporting (ongoing financial statements and tax returns) and fewer covenants.

3) More than just financing, since the current owner still has a stake in the business’s success, they will provide invaluable guidance and advice well into the future.

Plus, if the current business owner believes in the business (and you can get them to believe in you) – this should be a no brainer for the owner. If they hesitate without giving a very good reason, that might be a red flag to you as it might show that the current owner does not believe in the long-term viability of the business (they know something is wrong or in decline).

Let look at an example to show how owner financing works:

Let’s say you find a business for sale – a business that you know you will have the necessary passion to work hard at and grow beyond where it stands today.

The price of the business is $100,000 – yet, you tried to get a bank loan, a SBA loan and even a non-bank loan and have heard nothing but “NO.”

Here is where you approach the current business owner and entice them to sell you the business while carrying the note.

How your deal should work:

You tell the current owner that you will provide some down payment (this is to show good faith as well as provide a little cash incentive to the current owner).

This down payment should be around 10% but could be less depending on how much you can raise. But, raising $10,000 is much easier than raising $100,000. Plus, any bank or non-bank lender would require you put up more than 10% – so 10% is really a win for you!

Now, if you put 10% down, that means the current owner would have to finance the remaining 90% or $90,000.

Here is how to approach that:

State that you will pay both principal and a comparable market interest rate (let’s say for this example – 10% APR) amortized over (7) seven years (choose a term that makes the payments work for you as well as for the current owner).

But, you will also include a balloon payment in (3) three years – allowing the owner a full exit if necessary.

The longer term (7 years) gives you breathing room by making your payment affordable (the longer the term, the lower the payment).

The balloon payment (meaning that even though the loan amortizes over 7 years, the remaining balance after 3 years will be due in full – the balloon term) gives the current owner a way out in a short period as well as provides you time (3 years) to establish yourself in the business – so that when the time does come, you have a track record that you can take to the bank to finance that balloon balance.

Plus, if both of you are happy with the way things are going; you can always refinance the balance (balloon) with the current owner at the 3 year anniversary date.

Now, if agreed, you get the business (what you were working for to begin with).

The current owner not only sells the business – but, (given our example above) earns $22,700 in interest above the original purchase price – interest that you would have paid to the bank anyway if you were approved for a bank loan – might as well pay it to the current owner.

From our example, your monthly payment would be around $1,500

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The Basics Of Car Finance And Car Loan Options That Are Available To People To Obtain A New Vehicle

Understanding what it takes to secure your car finance needs is important. Without a thorough understanding you could end up with a bad car loan that costs you a lot of money. Take the time to read this guide to find out how to avoid bad car finance options and stick with the car loan lenders that work best for you.

How Does a Car Loan Differ from Other Loans?

This is the thing that most people struggle to understand. A car loan is based on a depreciating, moving asset. That means that if you aren’t able to make your payments the bank will have a hard time with two things:

1. Regaining the amount of the original car finance agreement

2. Finding the car for repossession

Because of this, they need to build protection into their car finance options for themselves. This means a bad deal for you, but it still allows you to get the car loan you need.

Car Finance Providers Offer Options

The goal of any lender is to provide options for a wide variety of customer types. That means both good customers and those with bad credit. It means offering short term loans and long term loans. But how do they determine which is best for you?

If you have outstanding credit you can choose any option you want. You can get approved for just about anything, as long as you have the income to pay the bills. You can extend your auto loan from six months all the way up to eighty-four. Some banks have loans that go even longer than that.

Those with bad credit have more limited options. Your interest rates will be high, but you can fight to get those brought down. Your terms will usually be limited based on your income. You will not be able to get a longer term, because that means the bank maintains the risk of your loan for a longer time.

Most individuals with bad credit should expect their loan to fall between 48 and 72 months. The more cash down you have (including equity in your trade) the easier it will be to get a loan with bad credit.

The reason is that your car will depreciate at an alarming rate. A vehicle worth $29,000 today may only be worth $6,000 in five years. The more money you put down, the less the bank needs to lend. That means that as time goes on they will have less to worry about, since your payments will continue bringing the amount of the loan down.

Unless you have great credit and the lender is offering 0% financing, you should consider putting a lot of money down, anyway. Interest is just a drain on your finances, no matter how low the rate actually is.

What it all boils down to is what you’re ready to find acceptable. Having a better credit situation will lead to better options. If you need a loan and have bad credit, you won’t have as many car finance options available.

There are many aspects to obtaining car finance and it is important that you are f

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