We are buying a small business and need help with how to come up with the down payment required?

Question

My husband and I are trying to buy a small business for $250,000.00 and have been told we need to have 20% down. We dont have $50,000.00 and were wondering how other people handle this problem.

OK-- more details are needed I guess. We have a business plan, purchase agreement, all necessary documents etc. Multiple banks have looked at this information and we seem to have all of the necessary paperwork. The business we are buying is actually a trade school that recieves income from students as well as clients. It is an already operating, and profitable business, facts that are supported in the last 3 years tax information, which I have been working at for the last year. We were originally going thru a traditional bank and the SBA, but they weren't coming back with a high enough loan amount to meet the sellers' asking price. We are now going thru a finance company, still backed by the SBA, but instead of 10% down, which we have, we now need 20% down-- so we are short about $25,000.00. Aside from asking family members, which we may do if there are no other options, we didn't know if there was any other way. Thanks

Answer 1

If you are like most small business owners, you want to build business credit for your company and get small business loans when you need them. To build business credit means less risk for you as the owner of the business. There is effort involved when you decide to build business credit. Start taking the steps to build business credit from the get-go. This way, you won’t find yourself without a strong business credit profile even if your business is thriving.

There is a lot of hype regarding the need to build business credit that says personal credit does not matter. It’s true that when you build business credit, you separate your business credit from your personal credit, but it does help to have strong personal credit as well. The more solid you are on your feet with personal credit, the more effective you will be when you build business credit. Credit protection laws vary between personal and business credit, so it’s important to understand the differences when you begin to build business credit. A good rule of thumb to follow is simply this – repair your personal credit along with the efforts you are making to build business credit.

As you begin to build business credit, set up your business structure properly with the state and get all the necessary licensing. When you build business credit you will need a business phone listed in the telephone directory under the business name. Buying products or services from companies that report your payment history to Dunn & Bradstreet and Experian will help you build business credit.

Don’t be discouraged by the best business credit score being reserved for the “big guys” when you build business credit. Maintain your focus and you will build business credit that has enough impact to catch the interest of private commercial lenders. Beware of loan fraud when you build business credit – a legitimate underwriter will not charge you a fee upfront to connect you with a business loan lender. There may be fees for other services involved when you build business credit, but not for that. Good business credit cannot be “bought.”

As always it is recommended to search for "strong business credit" on google - there are companies that help build business credit and have the tools needed to grow your business.


Sincerely,

Ilya Bodner
Small Business Owner
Initial Underwriting Group

*Breaking Down The Barriers To Small Business Financing*

www.initialunderwriting.org
www.strongbusinesscredit.com

614.231.3519
877.752.4300 FAX

Answer 2

The down payment is based on how much you can afford, how large or small you want your payments to be, what your credit is like, where you get the loan, how big of a risk the business is/was (depending on how well the previous owner did will determine this), how long your loan will be for and whether you have enough collateral to cover the amount required by the bank. All loans are given on an individual basis, meaning that there are too many differing factors to go by to really give you a true and definite answer, but like she said 10% can be a good figure to start with. As for the name change, don't change it, just let everyone know that the place is under new management, especially if the previous owner did lots of business, this also keeps some of the peole that owe you money that the previous owners had from delaying payment to you because you "do not exist" to them. If you want a rough estimate of how your payments will run and different down payments you should google a "free loan calculator" on the web. There are tons of those. Good Hunting

Answer 3

I hope you have already completed a business plan. Usually the financing issues are resolved in it.

Answer 4

People save, or borrow money from relatives, and when they have enough for the down payment, THEN they buy the business. Like anything else you'd buy, you have to have the money to buy it.