Business Owners/ Loan People - a question

[sebd12]

My husband and I have an opportunity to buy 10% of an existing business. His dad owns the majority, I think there are a few other owners, one of which is selling his 30% (of which we are being offered 1/3 of.)

We don't have the cash. We are still paying off our only home (~$180k value, just refinanced to 15 yrs, $140k owed.)

We are looking at $170k-$200k to come up with. We expect to make our purchase price back in 6-8 yrs.

What are our loan options for purchasing this? My husband currently works at the business (VP) and makes ~$50k. I work elsewhere and make ~$60k. We have very good to excellent credit.

The only business loans I'm familiar with are for starting businesses. I know very little about business management (I'm an engineer).

We plan to ask his dad for advice but I'd like to do some research on my own before we divulge our complete financial situation to family members.

Where do I start?

[beantrees]

Apr 23, 2015 11:52:18 GMT -5 @rennido said:

You need collateral. I don't think any bank will loan you money with nothing?

This. Typically with business loans, business assets can be used at collateral. With only a 10% ownership, the Bank has no recourse if the need to call the note and get those assets.

Sometimes, the Bank will loan the money if the other partners sign a repurchase agreement in the event that you leave/die etc.

Another option is to have your FIL or another partner guarantee the note.

[tealblue]

I would reach out to banks and find a small business loan expert.

I know this is rough with family businesses (and I'll be in your place here in a few years)... But is a $1.7-2.0 million valuation on the business accurate?

You'll also want a good lawyer to help guide you and a good CPA to help- they can often help with business valuations.

[sebd12]

Apr 23, 2015 14:07:17 GMT -5 tealblue said:

I would reach out to banks and find a small business loan expert.

I know this is rough with family businesses (and I'll be in your place here in a few years)... But is a $1.7-2.0 million valuation on the business accurate?

You'll also want a good lawyer to help guide you and a good CPA to help- they can often help with business valuations.

Thanks for the info everyone. Yes according to my husband this owner is selling his portion only to current owners or within the family, so is selling at below a true market value. Business is worth at least twice that. This would be a very good move for us if we can swing it. Business is very stable as is my separate career path and the growth/home values in our area so we are ok with over-extending slightly to make this work.

[beantrees]

Oh I forgot! Check out sba.go for info on loans to small businesses

[mcc]

I would check out SBA for sure. There are some companies like Kabbage that specialize in small business loans.

[EmilieMadison]

Apr 23, 2015 14:36:25 GMT -5 sebd12 said:

Apr 23, 2015 14:07:17 GMT -5 tealblue said:

I would reach out to banks and find a small business loan expert.

I know this is rough with family businesses (and I'll be in your place here in a few years)... But is a $1.7-2.0 million valuation on the business accurate?

You'll also want a good lawyer to help guide you and a good CPA to help- they can often help with business valuations.

Thanks for the info everyone. Yes according to my husband this owner is selling his portion only to current owners or within the family, so is selling at below a true market value. Business is worth at least twice that. This would be a very good move for us if we can swing it. Business is very stable as is my separate career path and the growth/home values in our area so we are ok with over-extending slightly to make this work.

How do you know the business is worth twice that amount? I would strongly suggest you get 3rd party reviews as due diligence before you do anything: an independent analysis to determine it's current value and projected growth, a CPA to review the last few years of financials and tax returns, and an attorney to review the business documents and setup and how the business is being managed.  Without these things, you're going in blind. Especially because this is a family business, you need to make sure you know what you're buying into, not just because of the financial risk, but because you will also have relationship risk.