Major Challenges To Securing A Business Acquisition Loan
Qualifying for a small business acquisition loan can be quite an ordeal to say the least.
If the business being sold is very profitable, the selling price will likely reflect a significant amount of goodwill which can be very difficult to finance.
If the business being sold is not making money, lenders can be difficult to find even if the underlying assets being acquired are worth substantially more than the purchase price.
Business acquisition loans, or change of control financing situations, can be extremely varied from case to case.
That being said, here are the major challenges you'll typically have to overcome to secure a small business acquisition loan.
>>> Financing Goodwill
The definition of goodwill is the sale price minus the resale or liquidation value of business assets after any debts owing on the assets are paid off. It represents the future profit the business is expected to generate beyond the current value of the assets.
Most lenders have no interest in financing goodwill.
This effectively increases the amount of the down payment required to complete the sale and/or the acquisition of some financing from the vendor in the form of a vendor loan.
Vendor support and Vendor loans are a very common elements in the sale of a small business.
If they are not initially present in the conditions of sale, you may want to ask the vendor if they would consider providing support and financing.
There are some excellent reasons why asking the question could be well worth your time.
In order to receive the maximum possible sale price, which likely involves some amount of goodwill, the vendor will agree to finance part of the sale by allowing the buyer to pay a portion of the sale price over a defined period of time within a structured payment schedule.
The vendor may also offer transition assistance for a period of time to make sure the transition period is seamless.
The combination of support and financing by the vendor creates a positive vested interest whereby it is in the vendor's best interest to help the buyer successfully transition all aspects of ownership and operations.
Failure to do so could result in the vendor not getting all the proceeds of sale in the future in the event the business were to suffer or fail under new ownership.
This is usually a very appealing aspect to potential lenders as the risk of loss due to transition is greatly reduced.
This speaks directly to the next financing challenge.
>>> Business Transition Risk
Will the new owner be able to run the business as well as the previous owner? Will the customers still do business with the new owner? Did the previous owner possess a specific skill set that will be difficult to replicate or replace? Will the key employees remain with the company after the sale?
A lender must be confident that the business can successfully continue at no worse than the current level of performance. There usually needs to be a buffer built into the financial projections for changeover lags that can occur.
At the same time, many buyers will purchase a business because they believe there is substantial growth available which they think they can take advantage of.
The key is convincing the lender of the growth potential and your ability to achieve superior results.
>>> Asset Sale Versus Share Sale
For tax purposes, many sellers want to sell the shares of their business.
However, by doing so, any outstanding and potential future liability related to the going concern business will fall at the feet of the buyer unless othewise indicated in the purchase and sale agreement.
Because potential business liability is a difficult thing to evaluate, there can be a higher perceived risk when considering a small business acquisition loan application related to a share purchase.
>>> Market Risk
Is the business in a growing, mature, or declining market segment? How does the business fit into the competitive dynamics of the market and will a change in control strengthen or weaken its competitive position?
A lender needs to be confident that the business can be successful for at least the period the business acquisition loan will be outstanding.
This is important for two reasons. First, a sustained cash flow will obviously allow a smoother process of repayment. Second, a strong going concern business has a higher probability of resale.
If an unforeseen event causes the owner to no longer be able to carry on the business, the lender will have confidence that the business can still generate enough profit from resale to retire the outstanding debt.
Localized markets are much easier for a lender or investor to assess than a business selling to a broader geographic reach. Area based lenders may also have some working knowledge of the particular business and how prominent it is in the local market.
>>> Personal Net Worth
Most business acquisition loans require the buyer to be able to invest at least a third of the total purchase price in cash with a remaining tangible net worth at least equal to the remaining value of the loan.
Statistics show that over leveraged companies are more prone to suffer financial duress and default on their business acquisition loan commitments.
The larger the amount of the business acquisition loan required, the more likely the probability of default.
Get with the Program...
Social media and technology have rapidly and surely emerged in our everyday lives. Not only people write everything they feel, do, or want, but also society has created a large reliance in technology and social media networks such as Facebook, Twitter, Blogs, Apps, etc. Events, meetings, conventions, seminars and trade shows must get with the program and incorporate the new emerging technologies and new trends to attract the attention of the attendees and of potential clients.
Get the code!
Let’s start with a new trend, the QR Code. It is a specific matrix barcode readable by a QR barcode readers and camera phones. QR codes are being found in several advertisements in different medias like print ads, and digitally. This will be a great innovative way to market and promote your meeting or convention. How does it work? Add a personalize QR code on your conference collateral. This way any attendee with a smartphone with a QR reader app can scan the code and be directed to any link that you desire. The link can be to a meeting’s website, a company website or a Facebook page, etc. This can also make your business cards a competitive edge. You can generate your own QR Code at http://qrcode.kaywa.com/ where you can make your QR code and link it to a URL, SMS, and/or other options. Tweet Tweet!
Twitter is one of the biggest social media website used worldwide. For those who are not with the program, Twitter is a social networking and micro blogging service utilizing instant messaging, SMS or a web interface. Event planners can integrate Twitter by using hashtags- a word that begins with a # symbol that will bing all the conference or event -related tweets together. (Example: #2011Convention) If everyone has the hashtag Twitter will automatically compile all of them together. The best part is that you don’t have to register a hashtag, just inform your client and/or attendees of the hashtag, and done.
Apps:
Another good idea for conference and trade-show attendees is utilizing eMobile. This tip is compliment of the Daily Hot Ideas from the Meeting and Conventions Magazine. “With eMobile (powered by CrowdCompass), attendees can download the latest conference schedule and attendee information and refer to it even when Internet connectivity is spotty. The app, usable on Android, BlackBerry and Apple devices, costs $995, plus $1 per attendee, for planners using eReg, the registration software provided by eTouches. For planners using different registration software, check out EventMobi and other tools by CrowdCompass. (800) 516-4265; etouches.com”
Social media has become a part of how we do business, marketing, advertise and live. The event planning industry is not the exception. Take these tips into consideration and I am sure your event will be even better. Be social!
If you still don’t believe or know how social media influences, here is video that can maybe change your mind.
References:
Information
Pictures
Video
Create Buzz for your Event...
Research is everything! The first step is to determine what makes your event unique. Are there going to be celebrities? Is it for charity? Any local hero present? Knowing your target market and what they want to hear gives your event a competitive edge. It will also grab the attention of not only the audience but it will attract the media. In addition to this, you must know what dates are the best to hold your event. If it is a corporate event and the theme is the environment, why not do it in April 22nd, Earth Day? This will definitely capture the attention of many who are “green” and it will also go in accordance with the event theme.
Second, depending whether you have a publicist or a public relations person in staff, the event planner or event organizer must have knowledge of most of the local media sources. Be familiar with the names and titles of local newspapers, magazines, and website staff. This way you can make sure that your press release or event information sent via email, regular mail, and/or fax can be received and published by the correct person. Here is when the need to have at least basic knowledge of Public Relations kicks in. In order for you to be completely prepared to reach out to the media you must have at least a press release, a press kits, and/or an online press room. According to the article, How to Attract Media to your Event, from the Meeting & Conventions Magazine an online pressroom should have the following:
“• Must include all press releases or announcements.
• Provide a list of frequently asked questions about your organization and
event.
• Indicate a contact person (name, phone and e-mail) for all media inquiries.
• Provide additional multimedia assets that the media/bloggers can embed
on their websites, such as info-graphics, videos and/or photos.
• Provide quotes from the organizer, exhibitors, sponsors and past/present
attendees.”
Remember to always invite the media to your event and make sure you have an assigned area or seating section for them, this way they will feel comfortable and “important”. This can secure another coverage plus, it can begin a beneficiary and receptive relationship between you and the media. Make sure you always follow-up with a thank you letter to all of those who covered your event, this way people will remember you and continue to cover your event because they enjoyed working with you. If you have zero knowledge of how to create press releases and other documentation make sure you consult a PR representative or publicist. Keep creating successful & unique events and but now add some buzz!
Information
http://www.meetings-conventions.com/articles/how-to-attract-media-to-your-event/a40774.aspx
Pictures
http://www.willirish.com/2010/08/create-a-business-buzz-with-social-media/
http://empoweredonlineentrepreneurs.com/online-marketing-software/creating-a-buzz-with-synnd%E2%84%A2/
Media Kit Example:
http://nubbytwiglet.com/2007/12/26/successfully-selling-yourself-how-to-build-a-press-kit/
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