A buyer very rarely pays the whole selling price of a business with their own money. If this happens, the buyer is generally a business that is considerably larger than the target business. In almost every other acquisition a bank and Finnvera are financiers.

Increasingly often the seller gives payment time for a part of the selling price, which means the seller can receive a better price for their business and it is easier for the buyer to trust the business, receive a loan and take care of the installments. A similar result is achieved, if the acquisition is executed in phases: one part is sold first and the rest later.

Usually the payback periods for the loans are under five years. This means that the business’ profits should be able to pay back the loan, received for buying the business, with interest to the financiers during this time. Banks and financing institutions have tailor-made financing packages for business acquisitions, which can include, in addition to regular loans, for instance acquisition financing or leasing.

If one bank doesn’t grant a loan, that doesn’t mean that the business is priced too high, although the bank might claim just that. An ill-advised manner of executing the acquisition, an unrealistic financing structure or poorly written financing applications mostly lead to negative financing decisions. In addition, the banks’ willingness to finance changes of ownership varies between year, office, group and the person making the financing decision. There is no unified practice or trend, although one could think that based on public information. It is worth asking several banks, if one isn’t interested in the venture.

You can apply for Entrepreneur loans from Finnvera for instance for starting a business, successions and business acquisitions. Finnvera can also warrant loans for businesses in the service industry and is especially the place to go when it is difficult to arrange collateral for a loan. It is also possible to receive grace periods of a few years when paying back Finnvera loans.

At times investors decide to be a part of the acquisition. Capital investment is included in the program of the Finnish Innovation Fund or Sitra. Other capital investors can be found in investors’ associations or through banks. A capital investor brings money into the business acquisition, thus easing the procurement of loans and in a way becoming a buyer among others. They are especially useful when the business acquisition won’t go through due to the lack of collateral.

Receiving financing generally fails, when sufficient collateral can’t be arranged. In these cases the asking price might be too high. The higher the price of the business in relation to its productivity and substance, the more diverse financing solutions are needed. It is easy for the seller to check how realistic their asking price is by asking financiers if they would be willing to finance an acquisition at that price. If the seller doesn’t do this, the buyer will.

When the acquisition concerns business operations, financing is generally easier to receive than in for instance share transactions. Machines and equipment can be used as collateral, which is not the case in share transactions. It is illegal.

Arranging financing can be difficult if the business being sold has few assets or assets difficult to realize, and a large part of the price consists of goodwill. In these cases, one should turn to financiers from the start in order to shatter any unnecessary illusions about possible financing solutions. An acquisition without financing will fail. This means that the realities of financing are the concern of both the seller and buyer.

If financing is causing difficulties, a business broker should be brought in to help. The broker has a large pallet of resources to receive financing, when conventional financing channels don’t yield sufficient results. These resources include share turnover, partial acquisitions, payment scheduling, investments, investing the selling price back into the business etc. By combining different financing instruments even a challenging business acquisition can succeed, but it takes expertise.

Suomen Yrityskaupat has a service for anyone looking to buy a business, which provides professional help with applying for financing. The service doesn’t finance acquisitions , but helps you find the right financing to execute the acquisition.

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