Biz Asset Sale Purchase
Asset sales are a popular method for acquiring a small business. They involve purchasing the business's tangible and intangible assets while excluding its liabilities.
This type of transaction allows buyers to selectively purchase essential assets necessary for the business's operation, facilitating a smoother transition and minimizing the risk associated with inherited debts and legal complications.
Components of an Asset Sale
1. Tangible Assets: These assets include all physical and material properties such as equipment, inventory, real estate, and machinery essential for the daily operations of the business.
2. Intangible Assets: These are non-physical assets that add significant value to the business. They encompass intellectual property like patents, copyrights, trademarks, goodwill, company branding, and customer relationships.
Benefits of SBA-Backed Loans for Business Acquisitions
SBA-backed loans offer substantial benefits in financing business acquisitions. The SBA guarantees up to 75% of the loans to banks that finance the acquisition, encouraging them to cover both tangible and intangible assets.
Contrary to common misconceptions, these loans do not need to be fully collateralized. Banks have varying credit approval policies; some may require full collateralization, while others are comfortable financing entirely based on a business's intangible aspects, or "blue sky."
SBA backs business buyer blue sky dreams.
SBA backs business buyer blue sky dreams.
The primary focus and bank approval method of SBA-backed loans is the historical cash flow of the business to be acquired as reported to the IRS rather than the seller’s provided P&Ls or broker summaries. This emphasizes the need for due diligence and verification of IRS-filed tax returns to confirm the business’s eligibility for an SBA loan.
Expanded Legal Framework in Asset Sales
An asset purchase agreement governs the legal intricacies of an asset sale, detailing the included assets and the terms of their transfer.
Engaging a reputable business attorney who is well-versed in SBA SOPs is crucial. This expert will ensure all legal documents and processes align with SBA guidelines and protect the buyer’s interests.
Cautions Against Inadequate Legal Resources and Brokerage Recommendations
Aspiring business buyers should be wary of expensive online courses and membership communities that offer "how-to" advice on business buying, which may include DIY legal templates.
Team Up with Buy-Side Advisors to Triumph
Team Up with Buy-Side Advisors to Triumph
Additionally, aspiring business buyers should be cautious of brokerage firms that recommend their business legal counsel, templates, or directly affiliated SBA lenders.
These brokers often receive financial incentives when a business buyer secures an SBA loan through their suggested channels. This can create a conflict of interest and result in advice that may not be in the buyer's best interest.
It’s in the buyer's best interest to maintain independence from such recommendations to ensure a transaction free from undue influence.
Conclusion
When coupled with SBA-backed loans, asset sales provide a strategic pathway for acquiring a small business.
By leveraging specialized business buyer legal guidance and verifying all financials through IRS-filed tax returns, buyers can ensure that their investment is sound and that the transaction aligns with their strategic objectives.
Independent legal business advice is paramount to navigating the complexities of business acquisitions and securing a successful outcome.
As the author of this informative guide, Deb Curtis utilizes her extensive expertise and deep passion for assisting aspiring business buyers.
Deb offers mentorship and excels in sourcing the best bank loan structures backed by the SBA, ensuring that each transaction is strategically advantageous.
This dedication educates buyers and protects them, empowering them to confidently navigate the complexities of the acquisition process and secure their investments.
Join co-hosts Deb Curtis and Richard Parker via Business Buying Banter - No BS Maximizing Your Business Search on Thursday, April 18th, 2024, at 2 pm EST.
Subscribe to the YouTube Business Buying Banter - No BS channel here.
