6 Strategies to Surviving a Tight Credit Environment

Tight CreditTightened credit conditions are almost inevitable when the economy slows down. The cost of credit rises and lenders naturally become more risk-averse. There’s no way to get around the reality of tighter credit markets, but certain strategies can help your business survive – and even grow – during the downturn.

Consider these six strategies:

Keep lenders in the loop. Communicate proactively and frequently with your lenders, instead of waiting until you have an urgent need or problem. Keep them abreast of your company’s strategic plans and share your successes. But also let them know as soon as possible about potential issues. Your lenders are likely facing increased scrutiny themselves, and will feel more comfortable knowing you’re keeping them in the loop about how your company is doing.

View the full business article here.

Buying A Business – Putting Together an Effective Business Plan

Thinking Ahead of the Game by Putting Together an Effective Business Plan

When you are going to buy a business, it’s important that you understand how a business plan works.

There are many people that before they bought a business had never created a business plan.

At VR Business Brokers, we will educate you on formulating an effective plan when you come in for a consultation.

When discussing one of the business opportunities that we have available, you will discover that many already have an existing plan in place. This will give you a solid foundation to work from, where you can either continue to follow, revise or change completely.

Usually, the only time that most small to mid-sized business owners write up a business plan is when they are looking to obtain financing. Most lenders will want to review a business plan before they consider approval for a loan.

Every VR business intermediary will advise how critical having a business plan is in order to be a successful owner when the purchase is complete. Some brokers argue that you can be successful without a written plan in place. However, in most cases, this is where business owners can fail miserably.

When you are looking into buying a business, you need to prepare not only for how you are going to continue running the operation. You must look at how you are going grow your business.

For example, you need to know how much working capital will be required to keep the electricity on, employees working and marketing to new customers.

Financing Your Purchase and Expansion Plans

VR will help you look at several options on how to finance growth for the business that you are buying as you put together a plan.

Since expanding the business is in your best interest, the major risk to overcome here is the short-term cash flow problem – how it can be managed and controlled to avoid risk.

In order to discover how much additional cash will be needed to finance growth for the business that you are buying, you will need to draw some projections.

VR will assist you in determining:

  • What is going to be the timing of the cash flow;
  • How much money is going in, out and when will it be;

We will have you consider numerous factors to have the best plan in place.
You will look at different variables, so you can create several sets of projections.
You will need to examine whether you should seek outside financing, if seller financing is being offered, look at venture capital as well as other options.

Examining Your Financial Options

Most people don’t realize it but bank financing is only one option for assisting in buying and growing an existing business. There are many other options that are available, and you will want to keep your current cash and bank credit lines available for other business needs.

Some of the options available for financing the buying and expansion of a business include:

  • Utilizing a credit line;
  • Venture capital;
  • Liquidating investments and assets;

Speak to a VR business intermediary today about buying a business in your local area, and the financing that’s available.

VR can also offer financial options in purchasing a VR Business Franchise. Contact VR headquarters for more information at (800) 377-8722


Six Sources For Financing A Business Acquisition

Six Financing Sources for Buying a Business 

Congratulations. You’ve decided to buy a company. The only thing that stands between you and the purchase is lack of capital. Fortunately, many sources of capital exist that can help you accomplish an acquisition-some simple and straightforward, others more esoteric.

Six Financial SourcesThe Big 6

Wading through financing choices-let alone picking one-can be taxing. Here are the basics about six options you can discuss with an acquisition professional.

1. Buyer’s liquid cash.

On the simple and straightforward side of the ledger sits your bank account. When considering the use of your cash, note how much risk you’re willing to assume, because risk grows in proportion to cash expended. That said, why should you put up any money at all? Well, when approaching third parties for money, keep in mind that they want to share the risk-or, as it’s sometimes known, they want the purchaser to have “skin in the game.” Investors rightly believe that it’s in everyone’s interest for all investors to be somewhat “at risk.”

2. Buyer’s company stock.

If you’re a publicly-held company, or a privately-held company with plans to go public soon, you may want to consider the use of your company’s stock (either preferred or common). But keep in mind that the seller’s motivation is usually in creating a “liquidity event.” As a result, cash will be king, so using stock means the stock will be discounted against the cash price, increasing the number of shares you’ll need to use and, ultimately, raising the purchase price.

3. Acquisition target’s assets.

Interestingly, many potential acquirers look at the target’s assets. Frequently, banks and other secured lenders make loans against such assets, including accounts receivable, inventory (raw material and finished goods only), furniture, fixtures, machinery and equipment. The dollar amount banks will lend against these asset categories varies-usually starting at 80% to 85% of the most liquid assets (receivables less than 90 days old).

Next come raw materials and finished goods. When banks or other lending institutions consider inventory, they normally will advance no more than 50% to 55% of value – and then only when the inventory in question is deemed liquid. Last, most banks will lend approximately 80% of “liquidation value” (the price a buyer would pay for an asset at auction) against the borrower’s fixed assets.

4. Cash flow loan. 

Some lenders will make a cash flow (also known as an over-advance) loan, when the borrower, target or the combined business’s cash flow supports a loan of this type. Usually, these additional advances are made only on a short-term basis. And, if the transaction involves only privately-held companies, it’s typical for banks to secure personal guarantees from the borrowing entity’s principal stockholders.

5. Real estate. 

Another potential cash source is the company’s real estate, if you intend to acquire it along with the business.You can mortgage or refinance buildings and land if they’re already subject to a mortgage, or sell and lease them back.

6. Mezzanine/subordinated lenders. 

These lenders comprise many private equity groups. The groups’ risk level falls between banks and other secured lending institutions discussed previously, and pure equity investors. Mezzanine/subordinated lenders’ compensation is between that of equity providers and secured debt holders.

Mezzanine lenders normally get a cumulative cash yield on their investment of 9% to 15% over the investment’s life. In addition, they also get a “kicker” that typically appears in the form of warrants, which will increase these investors’ yield to 18% to 25%. The number of offered warrants governs the expected yield on these nominally priced warrants.

Narrowing It Down

There’s no such thing as a free lunch or financing option. Every cash source costs money, usually in the form of interest owed to the lender. So, when considering whether to buy a business and how to pay for it, remember that part of the ongoing cost of operating the acquired company will be paying for other people’s money you used to purchase it.

If you need help breaking down funding options-or want to discuss other facets of acquisitions, please call VR at 1.800.377.8722 .

VR can also help with setting up Financing if you are interested in owning a VR Business Brokers Franchise.

You can view the  VR Presentation Videos & PDFs  for more information on owning and running your own VR Business Sales office.