Raising Business Finance During a Recession

One of the major concerns facing anyone looking to purchase a business is how they will raise the necessary finance. This has been made even more difficult due to the global recession that is currently taking place, so raising the necessary capital may become somewhat of a problem.

Banks and financial institutions are increasingly hesitant to lend out money no matter how good the business proposal may look on paper or how successful the company has been in the past. A particularly large sum of money, such as that needed to buy a business will be extremely difficult to obtain so just how will any potential buyer find the finance he so badly needs in order to purchase the business?

If you are in this situation and have exhausted all traditional avenues of finding the capital to buy a business, one method you may not have thought of is asking the seller to finance your purchase. He may seem rather reluctant at first but any seller with good business acumen will realise this may be a worthwhile exercise, particularly in the current economy. He knows there will be far less interest in buying his business due to the recession and even those who are genuinely interested will, like you, encounter difficulties in finding the necessary finance. He may come to accept that if he really wants to sell, financing the purchase may be the only option left open to him.

There are risks involved for him if he does decide to finance your purchase and he will be fully aware of these. For example, if you fail to meet the repayments, he will be left still owning the business but at least he won’t have lost any money on the deal.

If you are planning to ask the seller to finance your purchase, arrange a meeting with him to discuss the matter. Spend some time beforehand doing some research and take along documentation and figures relating to the deal that will prove it is worthwhile for him. Make sure he knows that he can charge you a higher price than he would get on the open market and that you are willing to accept a slightly higher rate of interest than current market rates.

The buyer has free reign here to set his own terms so will end up with a much better deal long-term than he could ever hope to achieve by accepting a cash offer on today’s market. He’ll also benefit from tax incentives. However, no matter how persuasive you make the deal sound, the buyer may not wish to enter into a financial agreement with you. Perhaps he needs a cash sale or doesn’t want to be involved with the company any longer. If this is the case, it’s unlikely he’ll change his mind.

Of course, any financial arrangement won’t just benefit the seller of the business; there are advantages for the purchaser as well. Apart from the obvious one of not having to seek out a loan from the bank, you are likely to go the extra mile to ensure the business runs successfully under your ownership, as you know it can easily be taken from you if you fail to meet repayments.

You’ll also be aware that the seller rates your chances of making a success of the business as otherwise he wouldn’t have agreed to finance it. This will boost your confidence no end.

When it comes to arranging the terms of the agreement, it’s vital to ensure you are getting a fair deal. Don’t agree to almost everything the seller puts forward simply because you want to own the business more than anything else. Make absolutely certain you can afford the repayments plus the interest the seller will be charging and that all terms and conditions are beneficial to both of you.

Bring in a business broker if necessary, who will have experience this area. He will help arrange a deal that suits both the buyer and the seller, ensuring neither ends up with a rough deal.

About the Author

Paul Leach is the webmaster of http://www.hogarthassociates.com.au/ and Director of PGL Internet Services.
The website has hundreds of businesses for sale across Australia and is designed to assist people who are either buying or selling a business. In addition to business listings there are also many business related articles offering tips and advice on different business topics.

Paul also operates several other websites which include Businesses for Sale in the UK and Australian Gifts Online.

Paul lives on the Northern Beaches of Sydney with his family and enjoys playing beach volleyball and running in his free time.