Thursday, August 23, 2007

Business Lending- Have Funds Dried Up?

The last post was on how the tightening credit market is affecting sellers of residential real estate. Now here is what I am seeing regarding commercial financing for business purchases.

I have several clients in various stages of selling their businesses. The reasons for sale vary from retirement to having an offer come from out of the blue, to exiting one business to begin something new.

I am seeing requests for due diligence become longer than in the past, and I believe in some circumstances this is in part because it is becoming more difficult to raise the necessary capital to complete the buy.

In one incidence, an employee wanted to purchase the business from her employer. The business was successful, she had the right experience and skill to run it, and it had been established in the community for 26 years. She had good personal credit, but she was unable to find any lender to issue the funds. There have been two other parties interested in the three months since, but none have come forth with the capital to date.

Another case finds a younger owner who was approached by a large corporation with a proposal to purchase his successful business which he began about 10 years ago. The offer was so strong he couldn't refuse and the purchaser promised a sales contract within a couple of weeks. That was 4 months ago. Every time I check in, the buyer is still interested, but is saying they are taking longer to get the funding together than expected. They have provided some earnest money, but being in limbo is very frustrating.

There are still plenty of buyers with existing capital to make business purchases, and I believe the sales in the examples above are going to happen, just not in the time frames that were initially outlined.

There will always be transactions happening. A bit more patience is now often necessary.

Next: Selling stock portfolios

Paula Straub

Fill out a Qualification Questionnaire to find out if you qualify to save capital gains tax.

How the Lending Crunch Affects Sellers

I'm sure you've been seeing all the stories about mortgage lenders cutting jobs, filing for bankruptcy, and tightening the rules on new loans. It is indeed a mess.

If you are selling an asset- how does this affect you? The next couple of posts will give examples of what I am seeing on a weekly basis.

First are those selling residential real estate. Properties that were previously selling typically within a month are now taking much longer. Often times, even when an offer is made and accepted, the financing which the buyer supposedly qualified for falls through before close of escrow and the process begins all over again. There is a lot of "hurry up and wait".

Prices are being reduced and saving capital gains tax becomes even more important for those who need to sell. Others, who have less pressing needs are deciding to re-rent if this is possible and a few are offering seller financing.

This too shall pass, as all forms of investments surge in some cycles and decline in others. It's a reminder that diversification is critical to any financial plan.

Next - selling businesses

Paula Straub

Fill out a qualification questionnaire and find out if you qualify to save capital gains tax.