Obviously the quickest and easiest financing of a business purchase is to reach into the pocket and draw out the cash. Really. That is easy. Most can’t.
Here are some other ways with many variations and combinations:
Seller financing – routinely with no less than 30% down and terms of up to 10 years with an interest rate of perhaps 6 percent. The shorter the term and higher the interest the harder to make the payments. This does not usually have the costs of bank or 401K financing.
Bank financing of the business purchase with or without SBA backing – routinely with a down payment and terms similar to seller financing.
401K investment – usually this form of investment is managed through a specialized firm. They take perhaps a $4K fee to arrange these steps for you 1) set up a C-corporation, the only one that will do; 2) ensure the funds are available to have your 401K buy stock of the C-corporation; 3) have a legal review; and 4) forward the funds to the closing agent for dispersing in the transaction.
Taking equity in a home or other piece of real property and thus, spreading out the term of the loan to as much as 30 years, helping to ensure cash flow to the owner.
The down payment can be as little as 10% of the purchase price, a specific SBA product at some banks. It might come from the purchaser’s very deep pocket, sale of equities either from a retirement plan or general investments, a best friend or relative. If taken from the retirement plan there may be income tax to pay with potentially a penalty.
There are nuances to all of these. Investigate them all to determine the best avenue for the specific circumstances. Don’t forget the working capital needs!
