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Business Acquisition Financing






Many experts agree that an acquisition of existing income producing business will require less financial resources than building a business from scratch. Also, the time required to bring a start-up to a position where the potential acquisition candidate stands has to be taken into consideration. In the past getting Leveraged Buy-Out funded was easy, but numerous transactions successfully financed then, would not even pass preliminary underwriting guidance for many lenders today.

Entrepreneurs approach UB Solution for Business Acquisition Financing and surprisingly some of them come unprepared having an impression that a Financial Source by definition is interested in the project. The reality is that only if the project is proven to be feasible to a Financial Institution or a Private Capital Source it will be considered for funding.

The most important thing an Entrepreneur has to understand that the amount requested from a Lender or Investor shall be considered at risk until paid back in full.
The Entrepreneur's job at this time is to make sure that the Capital Provider is totally convinced that:

a. The loan will be paid back on time and with a required interest; and

b. The Equity Investment has a very attractive rate of return.

In today's challenging times Lenders and Investors tighten their requirements so much, that getting financing sometimes looks like an unachievable task, but in reality if a Capital Seeker follows the steps outlined below and comes prepared, the chances of getting it done will improve dramatically:

1. Have purchase agreement or at least an LOI signed by the seller. No Financial Source is able to make a commitment unless a commitment to sell is in place.

2. Have particular experience in the industry. When advisers at UB Solution receive a funding request, the first and biggest red flag is not having relevant industry experience (even with twenty years of work experience as Real Estate Developer and want to acquire a Toy Manufacturing Company it would be considered as a very big red flag ).

3. Have professionally written business plan with all the supporting documentation: historical data, cash flow projection, purchase orders, LOI's, marketing plan, etc. Be prepared to prove your case to the last letter.

4. If possible get seller's financing. If seller is willing to hold a note it shows to a capital provider that seller believes in a Post-Acquisition performance of the company.

5. Try to get as much as possible in debt financing. Debt Financing is based on a collateral available: assets of the company to be acquired. If you own existing company and plan a merger, consolidated assets can be collateralized. Assets Based Loans is the loan collateralized by company's assets: Accounts Receivable, Purchase Orders, Inventory and Equipment. Commercial Real Estate and other Valuables can be used as an additional collateral.

6. Mezzanine loan. Mezzanine loan comes to the picture when senior's debt resources become exhausted. It is basically debt capital that takes a junior position to a senior debt, has higher interest rate and sometimes gives lenders rights to convert to an ownership or equity interest in the company.

7. Equity Investment and Joint Venture Partnerships. Equity Investment is much riskier to a capital provider than debt, and therefore will require higher Internal Rate of Return (IRR). Financial models with all the supporting documentation are required in order for sophisticated investor to evaluate viability of equity investment in the proposed Business Acquisition.

8. Post-Acquisition Synergies and Performance. Be prepared to strengthen and finalize the case with improved Post-Acquisition Performance and professionally evaluated prospective Synergies.

UB Solution sometimes gets requests to provide 100% financing for an acquisition. Is it possible? Yes, but please be prepared to do your job as an Entrepreneur: be ready to prove that your project is worth it.

Many people think that getting Business Acquisition Financing is an easy task. It can be done only if you have a substantial particular industry expertise, a very high level professional knowledge in business evaluation, business plan writing, financial projections, marketing, etc.



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About the Author

Yury Iofe, Universal Business Structured Solution
Princeton, NJ 08540
888-778-1437

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