Three Ways Buyers Pay
Most company sales under about $5 million are funded by some mix of buyer cash, an SBA loan and a seller note. Larger deals bring in private equity money, bank loans and more complex structures.
All cash offers exist, but they are rarer than owners expect, and they often come with a lower price because the buyer carries all the risk.
How the SBA 7(a) Loan Works
The SBA does not lend directly. It guarantees part of a loan made by a bank or other approved lender, which lets the lender accept a smaller down payment and a longer term than a normal business loan.
For a seller, that means a much larger group of possible buyers. Many people buying their first company rely on this program.
The trade off is scrutiny. The lender orders its own business valuation, reviews three years of tax returns, and will not lend more than the appraisal and the cash flow support. If your tax returns understate profit, the loan shrinks with them.
Where the Seller Note Fits
A seller note means you accept part of the price over time, with interest, instead of at closing. Lenders often like to see one because it shows the seller believes the company will keep performing.
Under SBA rules, part of a seller note may need to sit on standby, meaning payments pause for a period. Terms change from time to time, so your broker and the lender will confirm the current requirements for your deal.
A typical note might cover 10 percent of the price, paid over several years. Ask for a personal guarantee from the buyer and a security interest in the business assets.
Earnouts and Staying On
When a buyer worries that key customers will leave, an earnout can bridge the gap. Part of the price depends on results after closing. It can win a higher headline number, but it shifts risk back onto you, so define the targets carefully.
Another option is staying on as a minority partner or paid consultant for a transition period. Private equity buyers often expect this.
Military Buyers in the Region
The Pikes Peak region has many people leaving military service with savings and a plan to own a business. Some qualify for SBA loan programs and fee reductions aimed at veterans, which can make them strong, motivated buyers for service companies.
Protecting Yourself as the Lender
When you carry a note, you become a lender. Ask your attorney about default terms, reporting, insurance requirements and what happens if the buyer sells the company before paying you off.
Tax is part of the picture too. How the price is split among equipment, goodwill and a noncompete changes what you owe. Your CPA should model it before you sign.
Keep Reading
See how buyers price an established business and getting your books ready, then request a confidential valuation to learn what financing your company can support.