FAQ’s for a Business Broker

• A Small Business Loan(SBA Loan) – These loans can be obtained from banks and other lending institutions anywhere in the United States. This process requires the buyer to provide their own personal financial information and well as the financial information from the business the buyer is seeking to acquire. This takes anywhere from 60 days to 120 days once the lender has received all the information needed to process the loan application. Usually, advisors and brokers can refer banks and loan officers that have done good jobs in the past, but they are not able to help the buyer secure the loan.
• Conventional Loans– These loans usually are harder to secure and have higher interest rates than SBA Loans, but they may be easier to secure if the buyer has a relationship with the bank or lending institution.  Again, advisors and brokers are not usually able to help buyers secure these conventional loans.
• Owner Financing– In some rare cases the business owner is willing to provide the financing for the purchase of their business. There are several reasons for this, but the most frequent reason is that the owner is selling their company to a friend, relative, employee or management team that he knows well and trusts. In these cases, the advisor or broker can help the owner determine the kind of structure that would accomplish the goals that the owner wants to achieve. The advisor or broker can also provide the buffer between buyer and seller that can help facilitate the negotiation of the terms of the promissory note or interest rate that is established.  DBG Advisors has and will help in this way.

When a broker has been engaged by a buyer to help him/her find a company to buy, the parties sign a buy-side agreement that outlines the scope of work required in the engagement. In most cases, there would need to be an established target industry that the buyer is looking to acquire along with a geographical region for the search. There is usually a retainer paid by the buyer when an engagement letter is signed of between $5,000 and $10,000 depending on the size of the target companies. If the engagement is open ended and the search is wide without any specific companies identified, then the retainer could be paid monthly rather than at the beginning of the engagement. In addition, once a company has been identified and a sale has been negotiated the broker also receives a percentage of the sales price.  In most cases this percentage is 5% of the consideration paid at closing. However, if the buyer has identified the target company and the buy-side engagement is more limited then the broker is usually paid a retainer and an hourly rate for consulting services provided.

In the sale of any business, buyer and sellers usually need help to be able to communicate their ideas clearly. The reason for this is that the sale of a company is a very emotional thing for both business owner and buyers.

Owners have spent years investing their money, blood, sweat and tears into their “baby” and when the thought of actually selling their “baby” finally dawns on them they become possessive, emotional and begin to back away from the sale.  These owners remember the good things about their company and emotionally inflate the value of the company to the point that it is difficult to see anything negative about the business. They have talked to other owners in their industry who have sold their company and these friends have either basked in the glory of their amazing sale or told horror stories about the mistake they made selling their company. After all, the owner’s self-esteem is wrapped up in their company and they have not even begun to imagine what life would be after the sale. So, their minds are conflicted and therefore they need someone to be a non-anxious presence in the middle of the negotiations who can unemotionally explain and interpret the owner’s thoughts and feelings.

Buyers are anxious for several other reasons and find themselves almost indignant as they examine the business that the owner expects him to pay good money for. They place the company un a microscope of due diligence and all they see are the flaws rather than the things that attracted them to the purchase in the first place. In explaining their concerns, they often plant their foot firmly in their mouth and say something that comes off as offensive to the owner and these fundamentally innocent comments can blow the deal out of the water. Buyers also need someone to stand between them and the seller who can interpret their concerns in a way that does not threaten the transaction.

A Business Broker helps both sides communicate more effectively and lowers the emotional temperature in the room by their professionalism and calm demeanor. Since they have been through this process many times, they know how to maneuver through the mind field of issues and how to talk about the elephant in the room without causing a stampede. Having the right Business Broker involved in the sale of a company elevates the likelihood of a successful transaction.