One of the great opportunities present when working with the team at Website Closers is that we have relationships with a multitude of banks, investors, family offices, private equity groups, hedge funds and others. These relationships are like gold for buyers, because it will allow them to leverage debt in order to acquire a business, rather than funding the entire acquisition from their own balance sheet.
In addition, we hand hold buyers through the lending process to help ensure that the lending side of the deal does not go astray. We do this by ensuring that we get buyers in front of our lending partners that have experience closing deals with us, and by working with the buyer on the investment package, loan application and other materials necessary to get lending approved for the sale.
Not focusing on deal financing is a big mistake – one made by many business brokers that attempt to compete with us. In fact, many tech and internet business brokers are so confounded by the very idea of financing, that they push the parties to attempt to put together a deal without it. Huge mistake. For a buyer, financing is important because they can use the leverage to allow the company to pay for itself over time. For a seller, financing is important because it will inevitably result in a higher multiple and much more cash at the closing table.
As a sell-side client of Website Closers, you can be assured that not only will we represent your business from A to Z throughout the entire M&A process, but we will also work with the buyer of your company to help them finance the transaction. This is a big reason why we are so successful and have such high close rates – we know just how important deal financing is to the deal making process.
This particular method is rare. Of course, this is the best of all worlds, but many times, when all cash is offered to a seller of an online business, the seller likely isn’t getting the full potential value of the assets. For some sellers, depending on their particular situation, this might be acceptable, but for others, some level of additional capital might be requested, like an earn out on sales and/or profits or a seller note. We are experts at helping Internet business sellers negotiate the best deal possible for their particular needs; we will use our experience at getting deals closed to ensure our client, the seller, is happy with the purchase price and the method by which that purchase price will be paid.
Seller financing is also known as seller carry back. In this form of business financing, the buyer of the business will structure the deal so that a portion of the business is being financed by the seller through a seller promissory note, or similar instrument.
There are many advantages to seller financing for both the seller of a business, and the buyer. For buyers, it is interesting because there’s no underwriting process as compared to a bank loan. For sellers, this can open up the buyer pool to more people, especially if the go-to-market strategy is aggressive. Almost all deals have some level of seller financing included. The structure of a seller note can vary wildly, but usually they are 3-5 years in length, paid monthly and generate interest at a healthy rate. Seller notes can also help reduce the overall tax exposure a seller will have on the sale of her business.
Getting a loan from a bank is one method of financing the sale of a business. Bank loans are not that difficult when you know what you are doing, and when you have connections and a network of lenders interested in doing deals in the particular sector of the target company. It can be highly complicated, and often fail, for those that don’t know what they are doing and don’t have those connections. We have brought hundreds of millions of dollars in bank loans to lenders, so when we speak, they listen. This is important for both buyers and sellers.
Good credit is important to the process, especially with SBA loans. Additional important steps include a well thought out business plan, business projections and a tie-in between the buyer’s resume and the company that will be operated after closing. There are many other critical components of the process, and we can help buyers through the entire process.