Are banks lending money to finance business purchases in the transportation industry? Yes. But owners in the process of selling or considering a sale should understand that lenders are being much more selective with the business transfers they choose to finance. Some of the requirements lenders are sharing with CTA include but are not limited to:
Higher credit scores required from buyer. Some lenders are telling Charles Tenney & Associates 720+ credit scores. We are working with buyers with less impressive credit scores. If a buyer’s credit score is less than superb, the buyer must have very attractive financial credentials and/or industry experience to offset it.
Hard assets to collateralize financing—ideally property, but in many cases vehicles may suffice.
Detailed financial and cash flow models demonstrating how the business will react under economic duress, business decline, and other worst case scenarios.
The good news: CTA has relationships with many lenders across the nation and are experts at obtaining the financing needed to close deals. We can find the money for you.
Concerning Seller Financing: Six months ago, CTA provided Fastlane readers with an article about the role of seller financing in business sales. Here are two reasons why you should expect seller financing to play an even greater role in business transfers in 2009.
With tougher requirements for both buyers and sellers, 3rd party financing may be very difficult to obtain for some transportation business sales.
Many buyers rely on the equity in their homes for down payments on business purchases. Because of widespread home depreciation, the primary source for a down payment has in many cases disappeared.
Seller financing has always played a huge role in business transfers in our industry: going back well before the crisis in the lending market. In many cases, profit margins for transportation businesses are very modest—which can make securing 3rd party financing very challenging. Seller financing allows many sellers to reach a broader audience of buyers while increasing the price tag—well beyond what could be financially justified to a 3rd party lender.
In every transaction both buyers and sellers have goals. Many buyers would prefer to pay a lower price in one cash payment, but that is often not an option. Although not always ideal for the buyer or the seller, seller financing affords flexibility and deal structuring options that create “win-wins” and the ability for both parties to achieve their goals.
If you are considering buying or selling a transportation business and would like to speak to an industry specialist, please submit the contact form below.
