loan to buy an existing business (borrowing, loans, small business, attorney)

[foster3097]

Any advice as to where to get a loan to buy an existing business. A friend is selling a business for 95K. I have already had the books looked at and everything is good. I don't have any money to put down. Housing prices in my area (CA) are dropping a little. I have a real estate loan officer looking at a loan against my house, but he isn't sounding too optimistic. I will be running the business, will net me 80K a year, and my husband will keep his job (65K) a year. We can live off of the business income and my husband's income can pay off the loan... in 2 years. If I can come up with 50k down, my friend will finance the rest. I know he wants to sell and retire, so that is my last resort. I would still need the 50K down. Any suggestions?

[sunsprit]

If the business has assets that can be used to secure a note, then you've got the basis of a discussion with your banker about a loan.

However, if you have nothing to secure the loan except "blue sky", you've got ... nothing except a dream.

Your existing income is unlikely to support a $50K obligation, so that's out, too. A banker will typically look at your ability to make payments on the note from the perspective of you not deriving any income from the business you're buying. Could you support your payment obligations if the cash flow from the business didn't come through?

If your only asset is your house, and the folks you've talked to are not sounding too interested in that collateral for a loan ... then you're not in a good position to buy this business. It doesn't matter how promising the business income potential is based upon the current owner's books .... what matters is your proven track record in the business, of which you have none to date.

It's a "catch-22" to go into an existing small business. In my experience ... and watching others try to go into business ... the numbers generated by the sellers to justify their price rarely are the profits that you'll see for awhile, if at all. You must be well capitalized to buy into an existing business.

Even "franchise" business opportunities require a sizable liquid capital on the part of a buyer/franchisee before they'll let you buy into a proven business formula and location.

The only other option is to get the seller to give you better terms ... perhaps a very high percentage financing. From the seller's standpoint, that's a very poor deal ... it means they're still your business partner for a long time. The seller is taking all the risk as you could come in, not run the business profitably, and walk away with a minimal loss, if any. If you're buying mostly "blue sky", then you'd best look very closely at the real value and pricing of what you're buying. You may simply not be financially able to pay that price to be in the business ... there are many more out-of-pocket expenses to be in business than simply the purchase price of the business. Do you even have that operating capital? If you don't have money for a down payment and operating capital reserves, then you're not in any position to own a business.

[Bob The Builder]

Call your local SBA office and get an application. The past poster is right though. Youw ill need working capital just so you can sleep at night.

[Niners fan]

Better yet, call a local small bank that makes SBA loans. SBA makes its loans through banks. With your friend willing to carry a good portion of the note you should be get a loan. I think you can even get some working capital as part of the loan but I don't remember for sure. They might ask for a lien on your house. If the income is as good as you say though you should be able to get an SBA loan.

Good luck!

[Dave1215]

Any friends with deep pockets that are willing to invest in you... treat it as high risk venture capital.

Do you have a 401k with that balance? There is a way if you are a certain LLC to use your 401k without borrowing the funds or facing a penalty. Your 401k basically buys into the LLC as an investment. High risk too, but any option you have will be high risk. If you do this one you must have a good attorney and accountant to make sure its documented perfect.

[FarNorthDallas]

I would get a business valuation expert to look at the business just to be on the safe side.