We are grateful and appreciative for the time spent discussing Mergers and Acquisition Lending at Live Oak Bank in weeks past. A leading advantage of expansion through acquisition is this: borrowers may not need much equity, broadening your pool of prospective buyers. We were pleased to see many of you expressing interest in the product.
This product helps target industry competitors as potential buyers for your listings. The strategic acquisition of a competitor might be your key to gaining market share, expanding product lines, cross-selling to customers, and increasing pricing power. Live Oak Bank’s Expansion through Acquisition financing helps make this happen.
If you’re not familiar with our expansion through acquisition financing or you’d like to learn more, let’s connect. In the meantime, check out our information on the benefits and qualifications for expansion through acquisition, and feel free to share it with your customers and prospective buyers.
About Live Oak
Live Oak Bank is the #1 SBA lender in the country (by dollar volume). Live Oak specializes in acquisition financing across all industries nationwide and has Preferred Lender Partner (PLP) status with the SBA. This enables Live Oak customers to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not PLP Lenders. Live Oak brings efficiency and excellence to the banking process, without branches, by using a focused approach to technology and innovation.
To learn more about The Live Oak Difference, please visit our website.
Best regards,Read More
Monday, November 15, 2021
by John Vitale, MBA Commercial Relationship Manager Midland States Bank
SBA Procedural Notice 5000-821479, Issuance of Updated SBA Form 159 and Revised Procedures in SOP 50 10 6 for Submission of the Form (effective November 12, 2021), announces issuance of the revised SBA Form 159, Fee Disclosure and Compensation Agreement, and details the changes to the form. It also revises the procedures governing submission of the completed form to SBA by lenders. [SOP 50 10 6, Part 2, Section A, Chapter 5, Paragraph D.8.e. (p. 191) – for 7(a) Lenders – and Paragraph E.7.c.iv. (p. 201) for CDCs.] Lenders must begin using the new form immediately for new loan applications, but may continue to approve the previously approved version for applications already in process.
Per the notice, the substantive revisions to the 159 form include:
- Clarification that a separate Form 159 must be completed for each application when an Agent provides services to an Applicant in connection with multiple applications, and explanation of the new procedure for submitting completed forms and supporting documentation;
- Revisions to guidance regarding the itemization of services provided and the requirements for supporting documentation;
- Deletion of references to FTA/Colson Service mailbox since that email account is no longer active; and,
- New requirement that the lender use its 6-7 digit Location ID instead of its FIRS number to identify itself.
Effective immediately, the lender must submit all required executed SBA Forms 159, together with any required supporting documentation electronically to SBA’s Capital Access Financial System (CAFS) at https://caweb.sba.gov. After initial disbursement of the loan, the required form(s) and documentation must be uploaded into E-Tran Servicing in conjunction with the Lender’s monthly SBA Form 1502 report with submission required within two 1502 reporting cycles. There is no change to the requirement that 7(a) Lenders retain original signature versions of all 159 forms and all supporting documentation in their files for compliance review purposes. [Similar procedural changes are provided for forms and supporting documentation required in connection with 504 loans.] Please see the revised Form 159 and notice for full details.Read More
“Deep-pocketed investors often set aside money to buy into private equity funds. Such investments tend to be riskier but can generate higher returns than stocks or bonds. Here are some of the key players and terms in the world of private equity investments.
• Private equity firms: A broad category. It includes venture capitalists and buyout specialists who raise money from limited partners and use it to help companies develop products and markets.
• Limited partners: Investors in venture capital or buyout funds. These are typically pension funds, foundations, university endowments, insurance companies, or wealthy individuals.
• Venture capital firms: Firms that use their investment funds to finance start-ups, often in their early stages and typically in the technology, life sciences, or telecommunications fields.
• Buyout firms: They usually raise larger funds and invest them in more mature, later-stage companies of all kinds, often taking controlling interests and sometimes buying the companies outright. (The terms “private equity” and “buyouts” are often used interchangeably.)”
Source: Robert Weisman, in an article from The Boston Globe
There still aren’t too many ways to finance the purchase of a business. Here are the primary methods:
Some buyers may have the cash available to purchase the business. Some may elect to use the equity in their residence, or other real estate. Others may have other assets that they can sell or borrow against.
Banks may lend against a buyer’s assets as described above. They may also lend against the assets of the business, assuming there is sufficient value to support the loan. The business will also have to make sense to the bank, regardless of the asset value. In fairness to the banking system, many of the figures supplied by business owners have very little relationship to the actual earning power of the business.
Venture Capital Firms
These firms do not, as a practice, lend to small or even many mid-size businesses unless tremendous growth is anticipated. They also usually expect an equity position in the company.
These have become more popular. There is now some competition among lenders for these loans. Many banks offer them, but the large non-bank companies seem to have the upper hand in both acceptance and service.
This category includes family, friends, relatives, credit cards and leasing companies. Some suppliers have been known to assist in the financing of a small business.
This is, by far, the largest source of financing available for the purchase of a business. Many industry experts say that about 90 percent of small businesses sell with, or perhaps because of, the seller financing a good portion of the sale price. Buyers have much more confidence in the decision to purchase a business when the seller is willing to assist in the financing. The buyer has confidence that the seller believes the business will service the debt, in addition to providing a living wage.Read More
Business owners who want to sell their business are often told by business brokers and intermediaries that they will have to consider financing the sale themselves. Many owners would like to receive all cash, but many also understand that there is very little outside financing available from banks or other sources. The only source left is the seller of the business.
Buyers usually feel that businesses should be able to pay for themselves. They are wary of sellers who demand all cash. Is the seller really saying that the business can’t support any debt or is he or she saying, “the business isn’t any good and I want my cash out of it now, just in case?” They are also wary of the seller who wants the carry-back note fully collateralized by the buyer. First, the buyer has probably used most of his or her assets to assemble the down payment and additional funds necessary to go into business. Most buyers are reluctant to use what little assets they may have left to secure the seller’s note. The buyer will ask, “what is the seller not telling me and/or why wouldn’t the business provide sufficient collateral?”
Here are some reasons why a seller might want to consider seller financing the sale of his or her business:
- There is a greater chance that the business will sell with seller financing. In fact, in many cases, the business won’t sell for cash, unless the owner is willing to lower the price substantially.
- The seller will usually receive a much higher price for the business by financing a portion of the sale price.
- Most sellers are unaware of how much the interest on the sale increases their actual selling price. For example, a seller carry-back note at 8 percent carried over nine years will actually double the amount carried. $100,000 at 8 percent over a nine year period results in the seller receiving $200,000.
- With interest rates currently the lowest in years, sellers usually get a higher rate from a buyer than they would get from any financial institution.
- Sellers may also discover that, in many cases, the tax consequences of financing the sale themselves may be more advantageous than those for an all-cash sale.
- Financing the sale tells the buyer that the seller has enough confidence that the business will, or can, pay for itself.
Certainly, the biggest concern the seller has is whether or not the new owner will be successful enough to pay off the loan the seller has agreed to provide as a condition of the sale. Here are some obvious, but important, factors that may indicate the stability of the buyer:
- How long has the buyer lived in the same house or been a home owner?
- What is the buyer’s work history?
- How do the buyer’s personal references check out?
- Does the buyer have a satisfactory banking relationship?
Advantages of Seller Financing for the Buyer
- Lower interest
- Longer term
- No fees
- Seller stays involved
- Less paperwork
- Easier to negotiate