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    2 Replies Latest reply on Sep 8, 2009 12:30 AM by mark111

    Question regarding SBA and/or bank financing

      Greetings: I have posted to this forum previously and I am still in the process of researching existing businesses for sale. I have contacted my local "score" and unfortunately missed the gentlemens phone call and he is now on vacation for 3 weeks. But, I am certainly not going to purchase anything within that time frame so I thought I would post my question here being that it seems there is some involvement from SCORE volunteers and others who could possibly answer my question.

      Here is my scenario. I am looking for an existing business ( anywhere from brick and mortar to a service business to a route ) to purchase. When it comes to a brick and mortar or service business, I am preferably looking to purchase such a business that is well established ( meaning 15 + years ) and the owner is looking to retire, relocate or for some unforeseen reason needs to sell.

      I have upwards of $200,000.00 in liquid assets that are immediately available for the purchase. My thinking is if I am able to purchase a business with 1/3 my own funds, 1/3 SBA and 1/3 seller note, my buying power is obviously $600,000.00. If the SBA only requires 20% down, then perhaps my buying power may be slightly higher.

      However, here is where my dilemma comes in. I have very good equity in two pieces of property . My plan is to sell one piece of property within the next few months and then sell the other come the spring of 2010. At that point, I was then going to turn around and rent a home instead of repurchasing thereby banking extra funds to build and/or expand upon the business and also cut my living expenses in half.

      Let's say I purchase a business by the end of this year and I am able to obtain $400,000 in financnig between a seller note and the SBA. Am I correct in assuming that the SBA and the seller note are going to want to attach their loans as 2nd and 3rd mortgages to my remaining property ( which I plan on selling in the spring )?. If this is the case ( and this is really what I want to confirm ), and I do sell that property and turn around and rent thereby having no real additional fixed asset to collatoralize, then the 2nd and 3rd mortgages would have to be paid off upon the sale and I will not have the funds that I originally wanted to bank in order to build upon the business. Is there any chance that either would accept the business ( one that has been established, profitable, has an excellent business model and plan ) as collatoral?

      My thinking is that if not, I would then have to take a different approach and rethink the process of purchasing a business in the $600,000 range and look for much smaller businesses in the $200,000 to $250,000 range. This can make a big difference when it comes to current operating profits and net cash flow when comparing the two and also may make me focus on businesses that are more in the "underperforming and turn around" category than those that are in the "excellent existing net cash flow with potential growth" category.

      Any thoughts would be greatly appreciated. Thanks !!