Business for Sale Owner Financing

Hello, and congrats on taking a huge step toward your financial (and quality of life) future. My name is Jeff Cline, and I got bit by the Entrepreneur bug decades ago and I now have several businesses, as well as both, and sold several and at one point was also looking for business for sale with owner financing.

Getting started or funding your first business is the hardest, but once you figure out the right questions to ask and steps to take, you to can experience the life of a serial entrepreneur.

If you have questions, give me a call. I will share our “PRIVATE OPPORTUNITIES” list with you.

How to Funding a New Business or startup:

Here are the ways I started some of our businesses in the past:

Funding a business using personal credit or cash can be a strategic way to get started without taking on external investors or complex financing. Here are some effective ways to leverage personal resources:

1. Personal Savings

• What It Is: Using money you’ve saved to fund your business.
• Benefits: No debt or interest payments, and you maintain full control of your business.
• Risks: Depleting your savings can leave you without a safety net for personal emergencies.

2. Credit Cards (or friends and families cards) One time, we had over 30

• What It Is: Using personal or business credit cards to cover startup or operational costs.
• Benefits: Easy access to funds and rewards (e.g., cashback, travel points).
• Risks: High-interest rates if balances aren’t paid in full, which can lead to long-term debt.

3. Personal Line of Credit

• What It Is: A revolving line of credit from your bank or financial institution.
• Benefits: Lower interest rates than credit cards and flexibility in borrowing.
• Risks: Requires a good credit score and collateral in some cases.

4. Home Equity Loans or HELOC

• What It Is: Borrowing against the equity in your home.
• Benefits: Lower interest rates compared to credit cards or personal loans.
• Risks: Your home is at risk if you cannot repay the loan.

5. Retirement Funds (e.g., 401(k) Loan)

• What It Is: Borrowing from your retirement savings account.
• Benefits: No credit check required, and you pay interest back to yourself.
• Risks: Potential tax penalties and reduced retirement savings if not repaid on time.

6. Peer-to-Peer (P2P) Lending Using Personal Credit

• What It Is: Borrowing money from individuals through platforms like LendingClub or Prosper.
• Benefits: Easier access to funds than traditional banks. (no Credit Check)
• Risks: Interest rates can be higher than traditional loans, depending on your credit.

7. Microloans

• What It Is: Small, short-term loans designed for startups or micro-businesses.
• Benefits: Often more accessible for those with limited credit history.
• Risks: Smaller loan amounts might not cover all expenses.

8. Selling Personal Assets

• What It Is: Selling belongings (e.g., car, jewelry, or collectibles) to raise funds.
• Benefits: Immediate cash with no debt obligations.
• Risks: Loss of assets and potential emotional attachment.

9. Personal Loans

• What It Is: Loans from a bank or credit union based on your creditworthiness.
• Benefits: Fixed interest rates and repayment terms.
• Risks: Requires a strong credit score, and failure to repay can damage your credit.

10. Bootstrapping

• What It Is: Using a combination of personal cash flow, credit, and minimal expenses to grow the business organically.
• Benefits: No debt, and you maintain control over your business.
• Risks: Growth can be slower without significant capital investment.

Tips for Success:

• Start Small: Test your business idea with minimal funds to validate its potential.
• Keep a Budget: Track expenses meticulously to ensure your resources are being used wisely.
• Protect Your Credit: Monitor your credit score and avoid over-leveraging.
• Separate Finances: Use a separate account or credit card for business expenses to maintain clear records.

Would you like advice on managing risks or exploring additional funding options?

SBA LOANS

Small Business Loan was the next level for us once we got some money coming in; even if the owner was willing to finance, we still needed funds to scale, and that is when we went to the SBA. The FUNNY THING is they want you to have 2+ years with positive success and money coming in to GIVE YOU A start-up BUSINESS LOAN…crazy, is it a start-up, and Why do you need a loan if you’re making money?

How to get a SBA Loan?

Getting a Small Business Administration (SBA) loan involves several steps, from determining your eligibility to receiving the funds. Below is a detailed guide:

Step 1: Understand SBA Loans

• What They Are: SBA loans are government-backed loans designed to help small businesses access funding with favorable terms.
• Types of SBA Loans:
  • 7(a) Loan: General-purpose loan for working capital, equipment, or real estate.
  • 504 Loan: For purchasing fixed assets like buildings or machinery.
  • Microloan: For small businesses needing up to $50,000.
  • Disaster Loans: For businesses affected by natural disasters.

Step 2: Assess Your Eligibility

• Basic Requirements:
  • Operate as a for-profit business.
  • Meet the SBA size standards (based on revenue or employees).
  • Be located and operate in the U.S.
  • Have invested equity (your own money or time into the business).
  • Demonstrate the ability to repay the loan.
• Credit Score: A strong personal and business credit score (usually 640+).
• Collateral: Some loans may require collateral.

Step 3: Develop a Business Plan

• Include:
  • Executive summary.
  • Business description and mission.
  • Market analysis.
  • Financial projections.
  • Loan purpose and repayment plan.
• Why It’s Important: Lenders use this to assess your ability to manage the loan effectively.

Step 4: Gather Required Documentation

• Typical documents include:
  • Personal and business tax returns.
  • Financial statements (balance sheet, profit and loss statement).
  • Personal financial statement.
  • Business licenses and permits.
  • Resumes for owners and key managers.
  • Loan application form.
  • Collateral documentation (if required).

Step 5: Find an SBA Lender

• Options:
  • SBA-preferred lenders: Banks, credit unions, and non-bank lenders with expertise in SBA loans.
  • SBA Lender Match Tool: Helps connect you with suitable lenders.
• Tip: Research and compare lenders’ interest rates, fees, and terms.

Step 6: Submit Your Loan Application

• Work with the lender to complete the SBA loan application process.
• Be prepared for questions or requests for additional documents.

Step 7: Wait for Loan Approval

• Timeline: Approval can take 30-90 days, depending on the loan type and lender.
• What Happens: The lender and SBA review your application, financials, and creditworthiness.

Step 8: Receive Loan Funds

• Once approved, you’ll sign the loan agreement and receive the funds.
• Use the funds as outlined in your application.

Step 9: Repay the Loan

• Adhere to the repayment terms, including interest rates and schedules.
• Set up automatic payments to avoid missed deadlines.

Tips for Success:

• Maintain Good Credit: Both personal and business credit scores affect loan approval.
• Be Transparent: Provide accurate and honest information during the application process.
• Seek Expert Advice: Work with an SBA advisor or SCORE mentor to improve your chances.

Would you like help preparing a business plan or identifying SBA lenders?

We did this for $750,000 and then we took it our with PRIVATE EUITY.

Private Equity and Alternative Funding Sources

Private equity (PE), venture capital (VC), angel funding, and seed funds are all forms of investment aimed at helping businesses grow, but they differ in terms of funding stages, investment goals, and the types of businesses they target. Here’s a breakdown:

1. Private Equity (PE)

Definition: Private equity involves investing in mature companies that are often already profitable but need capital to expand, restructure, or go public.

• Stage: Established and mature companies.
• Typical Investors: Private equity firms or institutional investors.
• Investment Size: Large, often millions to billions of dollars.
• Ownership: PE firms usually acquire a significant or controlling stake in the company.
• Goal: Maximize returns by improving the company’s operations, cutting costs, or selling off non-core assets before exiting through a sale or IPO.
• Example: A PE firm buys a struggling manufacturing business, restructures its operations, and sells it for a profit.

2. Venture Capital (VC)

Definition: Venture capital focuses on investing in startups and early-stage companies with high growth potential, often in technology or innovation-driven sectors.

• Stage: Early to growth-stage companies.
• Typical Investors: Venture capital firms, often specialized by industry.
• Investment Size: Moderate to large, typically ranging from $500,000 to $100 million+.
• Ownership: VC firms take minority equity stakes but often gain significant influence in company decisions.
• Goal: Help the company scale quickly and achieve a profitable exit, usually through an IPO or acquisition.
• Example: A VC firm invests in a tech startup to help it expand its team and market reach.

3. Angel Funding

Definition: Angel funding comes from wealthy individuals (angel investors) who invest their personal money into startups, often at very early stages.

• Stage: Pre-seed or seed stage (before or just after product launch).
• Typical Investors: High-net-worth individuals or groups of angel investors.
• Investment Size: Small to moderate, typically $10,000 to $500,000.
• Ownership: Angel investors receive equity or convertible debt in return for their investment.
• Goal: Support the company’s initial growth, often with a focus on mentorship and long-term returns.
• Example: An angel investor provides $50,000 to a founder to develop a prototype and gain initial traction.

4. Seed Funds

Definition: Seed funds are institutional or organized funds dedicated to investing in early-stage companies to help them develop their product or prove their business model.

• Stage: Seed stage (early development, post-idea but pre-revenue or minimal revenue).
• Typical Investors: Seed-stage venture funds or accelerators.
• Investment Size: Small to moderate, usually $50,000 to $2 million.
• Ownership: Investors take an equity stake, typically smaller than in later stages.
• Goal: Help startups reach a point where they can attract larger VC funding.
• Example: A seed fund invests $250,000 in a fintech startup to develop its app and acquire initial customers.

Key Differences:

Would you like to dive deeper into any of these options or explore their pros and cons for your specific needs?

The experience of taking third-party private equity (PE) funding, especially when dealing with sophisticated investors such as family office managers or Ivy League MBA graduates, can indeed be a double-edged sword. Here’s a detailed exploration of the thesis, challenges, and potential lessons from such a scenario:

Thesis: The Trade-offs of Private Equity Involvement

Private equity funding can provide significant financial resources and strategic guidance to scale a business. However, it often comes with strings attached that can profoundly affect the founder’s autonomy, operations, and overall vision for the company. The core trade-off lies in exchanging equity and influence for growth capital, expertise, and connections, which can lead to tension if expectations and approaches diverge.

Key Challenges When Taking Private Equity Money

1. Loss of Autonomy

• What Happens: PE investors often demand significant say in business decisions, especially if they hold a substantial equity stake or board seats.
• Real-World Impact: Founders may find their vision diluted by investors’ priorities, which could focus more on short-term returns than long-term sustainability.

2. Excessive Oversight

• Scenario: Family office managers or PE firms, particularly those staffed with Ivy League MBAs, may impose rigorous financial controls and reporting requirements.
• Example: Transitioning from simple cash accounting to accrual accounting could disrupt operational workflows and require additional resources for compliance.
• Time Suck: Frequent check-ins, reporting, and strategic reviews can consume time better spent running the business.

3. Misalignment of Goals

• Investor Perspective: PE investors typically aim for high ROI, which may lead to cost-cutting, aggressive expansion, or pushing for an early exit.
• Founder Perspective: Entrepreneurs may prioritize brand integrity, customer relationships, or steady growth, creating tension.

4. Knowledge Transfer and Exploitation

• Teaching the Business: Founders may need to explain their entire business model, operations, and market dynamics to investors.
• Risk: Investors could become overly involved in day-to-day operations or leverage proprietary knowledge in ways the founder didn’t anticipate.

5. Cultural Clashes

• Example: Ivy League MBAs often bring textbook strategies and frameworks that might not align with the nuances of a specific business.
• Result: Friction arises when theoretical models clash with real-world practices.

Life Lessons and Cautionary Tales

1. Understand the Strings Attached

Before accepting private equity money, founders should:

• Review all agreements meticulously.
• Understand the extent of control and influence investors will have.
• Clarify expectations for operational and financial reporting.

2. Vet Your Investors

Choose investors who align with your values, understand your industry, and respect your expertise. Personality and cultural fit are as crucial as financial terms.

3. Retain Operational Control

Negotiate to maintain key decision-making authority, especially in critical areas like hiring, product development, and customer relationships.

4. Set Boundaries

Establish clear roles and responsibilities. Avoid situations where investors micromanage or overstep their expertise.

5. Consider Alternative Funding

Explore other options like:

• Bootstrapping
• Strategic partnerships
• Venture capital or angel investors with fewer strings attached
• Revenue-based financing

6. Be Prepared for the Long Haul

Understand that taking private money often marks the beginning of a long-term partnership. Be ready for ongoing collaboration and potential friction.

Final Thoughts: The Strings That Bind

Taking private equity money can feel like a golden ticket to rapid growth (and it was for us…we had a great PE partner…it did have its challenges…and it did make us BETTER IN THE LONG RUN) but it comes with obligations that can significantly impact your day-to-day operations, personal life, and long-term vision for the business. Founders should proceed with caution, weigh the trade-offs carefully, and ensure they’re prepared for the inevitable oversight and involvement that come with private investors.

Would you like help drafting a list of questions to vet potential PE investors or exploring alternative funding strategies?