Funding Question

[Illuminati]

I am currently looking into buying into a business that I am currently working for. Basically, I would be buying out one of the partners and taking over his share of the business. What I am wanting to know is what are the best avenues of approach for financing something like this? I would be looking at the following...

1. Needing $250,000.00 of capital
2. Am a veteran
3. Business is stable for the last 10+ years and has multi-million revenue stream.

So should I be looking at some kind of SBA loan vehicle to do this?

Thanks,
IL

[BusinessAdviser]

SBA should always be a last choice.

[rogercbryan]

Have you talked with a commercial bank? Do you have any collateral (house or investments)? I'm also a veteran and the SBA does have special programs for us. You still should use the SBA as a last resort when it comes to actually signing for a loan. You may how ever want to look into their programs just get some information as to what they have to offer and what they require. They will probably be a good source of information is nothing else.
Military Veteran Small Business Resources

[Illuminati]

I do have collatoral such as my house but did not know if this was the BEST way to go in getting a commercial loan or use the SBA. I have also read that you should try to come up with a sell agreement by which you are using the seller as the financing. So basically you would come to an agreement with the seller where they would be the funding agent and you would pay them the interest. Has anybody had any experience with this?
I just like to have all the information I can before I set off in any particular direction.

Thanks for the information,
IL

[akula]

I do have collatoral such as my house but did not know if this was the BEST way to go in getting a commercial loan or use the SBA. I have also read that you should try to come up with a sell agreement by which you are using the seller as the financing. So basically you would come to an agreement with the seller where they would be the funding agent and you would pay them the interest. Has anybody had any experience with this?
I just like to have all the information I can before I set off in any particular direction.

ok good. i've got a bit of experience in this.
essentially, what you're talking about and what you should aim for is an LBO (because that's usually the best way to structure the transaction).
in other words, you are not gonna be buying anybody out. it's the company that's gonna be buying out the shareholder (you won't be a party to the contract).
this is how it works:

1. You ask the existing company directors to nominate you as a director.
2. Once you're a director, the board passes a resolution to transfer the shares from the guy you're replacing (shareholder A) to you (shareholder B).
3. To pay for the shares, the company (i.e. not you) borrows money from the bank using it's existing cashflow and non current assets as collateral (but if it already has sufficient cash, it won't need to do this).
4. The company enters into a contract with shareholder A, uses the borrowed bank capital to pay him for the shares, and then one of the directors assigns these shares to shareholder B.
5. The company now owes some money to the bank. Then it executes a loan agreement with you (or a corporate vehicle you're managing), so that you are listed as a debtor and have the responsibility to the company (not the bank) to repay the loan pursuant to what ever terms you agree on...which could be as flexible as you'd like them to be.

Basically, with an LBO arrangement, the benefit is that the cost of capital will be lower because the bank will be lending the money to a less riskier debtor, and for you, the application/repayment process will be easier because you'll be borrowing money from a company of which you're a director...and in general, the most important benefit is that you can get this deal done in a week, because it's company that's gonna be borrowing the money from the bank (which it might not even need to do) which would get approved a lot quicker than you trying to pitch the bank for a business loan...plus lots of other tax related benefits.

[Illuminati]

Thanks Akula...
I am going to look some more into the LBO option in order to see if it is the right fit for my situation. If anyone else has any ideas then feel free to respond as I will be keeping tabs on this thread.

Cheers,
IL