Questions about buying an existing business

**EvilEye** · 04-30-2007 07:33 PM

I have a few questions regarding the purchase of an existing business.

First off, how difficult is it to obtain a loan for the purchase of an existing business? I would imagine it is quite a bit easier that obtaining a loan for a new business to be created. Do the lenders still want to see a business plan? How different is it from getting a real estate loan? Do lenders consider the income from the business you are trying to purchase when loaning to you(so that you wouldn't have to show that you are making that much already)? Any information on the process of obtaining a loan would be very helpful. I have a 760 mid score with a newly built house as an asset, but can't prove much income at this time.

Do you still need to apply for the tax ID #, business license, etc or does that come with the business, and is just transferred over to you? Also, 2 specific licenses come to mind, a liquor license or an auto dealer's license... are these just transferred to the new owner without having to reapply? I am pretty sure the liquor license is transferred to the new owner, but I am not sure about the auto dealer's lic.

Do you have to create you own entity before the purchase, or do you just assume ownership under whatever entity is already set up?

I'm sure I will be adding more questions to this list later.

Please let me know of anywhere i might be able to read up on this matter, as well as anywhere i can see existing businesses that are for sale, please let me know.

thanks

eric

**radreality** · 04-30-2007 07:41 PM

As far as the transferability of the business information (tax id/business license, etc), that all depends on the legal structure of the business. Simply put, get an attorney. Always seek legal council, especially with this type of thing.

As far as the difficulty of getting a loan....you are right about its easier to get a loan for that than it is for a startup; but there are many factors. The bank will require to see the financials of the business. The bank will also take into consideration that statistics show that a good amount of business tends to leave whenever ownership changes; there are exceptions, but this is typically how the bank will think. The bank will also want to know why the person is selling and why you are buying and what your plans for the business are.

I'm not an expert in this area, this is just a little info that I know. I would suggest that you look for an attorney in your area that is familiar with business acquisition.

**EvilEye** · 04-30-2007 07:51 PM

If it gets to the point where I am seriously interested in purchasing a a specific business, and I know I can get a loan, I will definitely be contacting an attorney. At this point I am just trying to gather as much information as I can, and see which way to go.

**fobvip** · 04-30-2007 09:48 PM

take a look at bizbuysell.com and bizquest.com, those are the website i use for my realestate work to list and find businesses for sale. Hope it helps.

**jasaunders** · 04-30-2007 10:48 PM

Transferring of licenses such as liquor or auto dealers depends on the municipality having jurisdiction. Because these licenses are issued at the city level (in most cases), it will be in your city/town/village local ordinances. From what I have seen, licquor licenses are usually transferrable, but it may not be 100% intact as it was for the old owner. For instance, some cities have the right to add additional conditions to your license that did not exist before. Also, typically the city council/alcohol review board/whatever your town uses, must vote on the transfer of the license, it is not automatic.

As far as the other questions, you should obviously consult with a lawyer and CPA. If the business was formed as a corporation, you will probably be advised to assume control of the appropriate shares under the already established entity. If the company is an LLC or similiar, it is very difficult to take control of these types of structures.

**DrMoney** · 05-01-2007 12:13 AM

Well, before I would even think about buying the business, ask yourself, Why are they selling it?

**sspoldir** · 05-01-2007 11:41 AM

You might want to pickup a book or two that will answer most of your questions. In particular "How to Buy & Sell a Business" in the richdad series of books. Of course there is no substitute for good legal advice from a lawyer and CPA.

-SS

**jasaunders** · 05-01-2007 12:44 PM

That book is a piece of crap, you are better off buying lottery tickets with your $12. It provides basic business advice that is learned in an intro business class. If you do not already have this knowledge, you probably shouldn't be owning a business in the first place. The basic elements you get out of the book are get a good accountant, get a good lawyer, and get someone experienced with business negotiations. There... I saved you $12.

**Dan_d** · 05-06-2007 06:12 PM

Agreed about the Kiyosaki book. There is a great NOLO book on buying a business, however.

Just a note on the liquor license - the bank will want to see take returns that substantiate the performance of the business. In many cases business owners "hide cash" - ie don't report it - in their business. This becomes a big issue in sales of existing businesses. For bars / restaurants this is especially true. Hence if that is what you are looking for - your best bet is to get the owner to hold a significant loan for you.

The argument is simple: the bank will not lend on the unreported cash in the business. If they want to sell at that valuation, then they should be ready to accept a good portion of risk for the unreported income.

If the business is in good shape and the finances are tight (and you have good credit) you can expect a pretty quick financing commitment. Expect that you will go the SBA route and have to put about 20% down, plus working capital.