Best way to fund a small business purchase?

[Zigs]

Hi all,

I'm considering purchasing a small business. The asking price is $250K and the company generated $255K in revenue last year and $175K in earnings, which represents a 40% growth YoY. I've done my research on the industry & business risks and I think this is a fair price.

But I don't have access to that kind of cash, so I'm looking into my financing options. My least desirable option is to take out a bank loan and pay high interest. The seller is available to finance part of it, but I'll still need to come up with probably $100K to pay initially. I don't have friends & family available for low-interest loans at the moment. Has anyone experimented with Rollovers as Business Startups (ROBS)? If it's not too expensive, I have available funds in my 401K that I would love to use as part of the acquisition.

Appreciate any advice!

[Montecarlo]

The company is growing at 40%/year and putting 70% to the bottom line, and the seller is willing to let it go for 1x revenue?  Are you sure the books are solid?

[OrchardTree]

The most desirable option is to take out a bank loan to fund it. Banks that are participating in the SBA 7(a) program will provide loans that have long terms, little to no prepayment requirements and no covenants. Here is a list of the banks that have provided the most loans as part of the program. Some of them you have to visit in person others you can deal with entirely over the phone / internet.

https://www.sba.gov/article/2017/oct/01/100-most-active-sba-7a-lenders

[Zigs]

@Montecarlo the seller is a trusted friend and the books are solid.

@OrchardTree I actually assumed SBA loans wouldn't be a good option compared to seller financing (which he is offering), because they'd have a way higher interest rate. But I suppose that depends on the terms of seller financing.

[Montecarlo]

@Montecarlo the seller is a trusted friend and the books are solid.

There's not many investments out there, risky or risk-free, that offer a 70% ROIC.  You could take out a loan from a mobster and be okay.

[OrchardTree]

@OrchardTree I actually assumed SBA loans wouldn't be a good option compared to seller financing (which he is offering), because they'd have a way higher interest rate. But I suppose that depends on the terms of seller financing.
[/quote]

Since you didn't mention it I assumed you weren't able to get seller financing, but you are right with seller financing you should be able to get a better deal than from a bank. If the seller knows the business, likes the business and thinks you will do well with it, why wouldn't he give you great terms?