Business Financing

A number of options are available, whether financing a purchase transaction or refinancing an existing business. A typical business purchase generally consists of a combination of cash or equity, and some form of debt financing. The cash or equity portion comes from the buyer’s personal savings, family, friends, and interested others.

Depending on the buyer’s particular situation, sometimes all or a substantial portion of the purchase price can be obtained from retirement funds (such as 401K plan, IRA, etc). Certain benefits financing firms have developed innovative methods whereby a buyer may fund a business acquisition using retirement plan proceeds free of taxes, interest, or penalties. Please note that this funding method requires following a very specific process. Therefore, it is vitally important to engage the services of a company that specializes in this transaction type. Your United Business Investments team member or UFS affiliate can put you in touch with the right firm. Or you may contact Benetrends [www.benetrends.com] for more information.

The remainder of the total transaction cost is funded in the form of debt or loan. The funding party in this case will be an institutional lender - such as a bank; or in some instances the business seller may carry the financing for the buyer. The latter is typically referred to as “seller carry-back”, “seller paper” or “seller held notes.” Rates for this type of financing generally range from 6% to 10% and it may comprise anywhere from 10% to 50% of the total purchase price.

Bank financing for many small business financing usually consists of some form of Small Business Administration (SBA). Contrary to popular belief, the SBA does not make loans directly to businesses. SBA loans are actually originated and approved by SBA participating lenders. That is, the SBA approved lender makes the loan, while the SBA guarantees some portion of the loan’s principal balance. The SBA has specific guidelines that the lenders must follow; and lenders also have their own set of underwriting requirements. All SBA lenders are not alike – there is a great range of “special” requirements amongst various lenders, and a wide range of expertise among their SBA specialists. Please visit the “SBA Loans” section of the United Financial Services website for more specifics.

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