ForumsFinancing Tips

Wow, I'm glad I ran into this thread. Thank you everyone for all the good information.

We're kind of on the same boat. We're in the process of doing our due diligence to purchase a well established (and profitable) daycare center. The business is booming, and parents are demanding that the center increase its enrollment capacity to accomodate more children. Enrollment is averaging at about 95-100% and net income for 2008 is expected to be $100k ($50k for the first 6 months). The owners want to retire and that's why they are selling. We negotiated a selling price of $294k. The downside is the owner doesn't want to do seller financing since they want to move out of state and just retire.

The business is very viable, and there is enough unused space in the center that will allow us to construct 2 additional rooms that will allow us to increase capacity. After renovations, we expect to increase capacity from the current 66 to 110. Once we average about 100 enrollments, our expected annual net income will be $175k, and we project to achieve that in about 2 years. My business partner and I are putting 20% and are looking to finance the remaining 80%. And that is where we're having problems. Due to the current economic climate, the banks have been very tight and it's been difficult for us to get lender financing. A poster here mentioned that the SBA loan route is not that rosy either. Only about 10% of loans are getting approved, and the requirements are getting much tougher. For a typical commercial loan, they are requiring our business to have 2 years of history, even though the business we are purchasing has been in business for more than 4 years. We are seeking some angel investors - friends, families, etc. but we don't think we'll be able to raise the amount even though we are offering good return rates for the investment.

The Letter of Intent we signed did stipulate that the transaction will not push through if we can't raise the capital to purchase. We're a bit desperate now. We think we can make the business continue to be successful, but if we don't get the needed capital, we'll have to let it go. When the seller first posted the ad in June, he was trying to gauge how much interest is going to be generated, and that he was pretty firm with his asking price. He wasn't willing to lower it since he figured if no one was willing to buy it for the price which he thinks is reasonable, he can just keep the center say another 6 months and earn the $50k net that he expected to receive at the end of the year. He'd keep on doing that until a party would come and offer him the right price.

So should I say that we are pretty much hosed here and not even have a chance at an LBO? Since we're at a point where we're running out of options, we're thinking of just risking asking the seller if he'd do an LBO for whatever amount we cannot raise to pay the selling price. If he doesn't like it, then we would have to drop off the race.