Financing tight but still available for acquisitions

There's good news if you're looking to sell your business.

"We're probably getting more buying inquiries than you'd expect," says Paul Heinze, a business adviser and appraiser who is president of Paul M. Heinze Co., Barrington Hills.

"It's not a land office rush, but more people are making appointments to look at businesses. They can't put their money into stocks and bonds or real estate."

And, at least into the beginning of this week, financing was available - although in nearly every transaction the seller was being required to carry part of the deal.

According to Joe McCaul, in fact, new guidelines for the SBA's 7a loans for acquisitions now state that "Lenders should require as much (subordinated) seller financing as possible."

Where a 10 percent seller note once was enough, the new standard is 20 percent says McCaul, president of Joseph Associates International, Inc., Chicago.

Sellers generally don't want to finance any part of a deal, but today, Heinze says, "If you're serious about selling, you'll take a portion of the note back."

One reason, Heinze continues, is that "Buyers want a hold back (as) assurance in this volatile environment that customers can and will continue to buy" what the business is selling.

The exception to virtually required seller participation appears to be in middle market businesses, where Peter Nilsen says "strategic engagements and operational issues" are driving acquisitions. Businesses in that category - Nilsen, president of Middle Market Resources, LLC, St. Charles, works with companies that have annual revenue streams between $5 million and $50 million - have both cash and the planning capabilities to seek and pull off strategic acquisitions.

In the smaller business sectors, where financing remains tight but money remains available, "Lenders are more cautious than ever," McCaul says. "More loans are getting pushed over to SBA."

That's not necessarily a bad thing, especially in today's market. Certainly not every bank is into SBA, but regional player Fifth Third and Buffalo Grove-headquartered American Enterprise Bank both make SBA-guaranteed loans.

Local Small Business Development Centers should know of other SBA banks, and there's an SBA district office in the Loop. Your business broker should have options as well.

Sunbelt does. A year ago "The bank broker who shopped our deals around got good interest rates, but that's harder for him to do now," says John Meyers, a business broker at Chicagoland Sunbelt Business Brokers, Chicago. One option for Sunbelt customers is Pendarvis Capital Group, a private capital group put together by Sunbelt founder Ed Pendarvis.

The group will cover up to half of a pending deal, according to Chicagoland Sunbelt Managing Partner Domenic Rinaldi. Fees are similar to SBA charges, but rates are higher. "These are deals the bank isn't doing," Rinaldi points out.

Questions, comments to Jim Kendall, JKendall@121MarketingResources.com.

© 2008 121 Marketing Resources, Inc.