When the economy is sluggish or in a recession, the amount of business sales decreases. This is not surprising as running a small business successfully is challenging in any market conditions. Potential buyers cannot afford to invest in a new business during this economic downturn. Buyers do not have the available capital to invest or to keep the business open if consumer sales are slow.
Financing a New Business
Small businesses are important during a recession as they produce products made in the United States and employee people located in the United States. This helps stimulate the local, state and national economies. However, if business owners cannot afford to remain open, this becomes a moot point.
Business brokers who assist in the buying and selling of small businesses say that financing for small businesses has remained difficult since 2010. Commercial lenders are unwilling to loosen loan qualification requirements. In fact, 2012 has been the worst year for potential small business owners. The actual loan application process itself is so complex that potential business owners just give up on the financing.
Understandably, lending institutions want to loan money to established business owners with a successful record behind them. It is risky to lend money to young people with limited business experience.
Other problems include the state of the overall economy. These factors include the national debt, long term unemployment and the rate of taxes imposed on small businesses and small business owners.
Ideas for Sellers
Clearly, small business owners cannot control legislation or improve the economy. However, there is something they can do. Sellers can consider providing the buyer with financing.
Not all business sellers can afford to finance sales. If they can finance at least part of the sale, the number of potential buyers increases. Doing so allows the seller to create sales contracts that lean in their favor. For example, if the seller finances their own sale, they may be able to sell the business at a higher contract price.
Business brokers state that seller financing can speed up the sale of the business. Small business owners must conduct a credit check and a background check of potential buyers. It does not make sense to finance a sale to a person who is a bad credit risk. Sellers can create their own loan terms which can be more lenient than financing terms from traditional commercial lenders. This way, even buyers with little capital can take over the business.
For those wanting to sell their business in a market where buyers have little capital, they must make their business attractive to potential buyers. For example, repaint or remodel where necessary to make the business look up to date. Make sure the plumbing and electrical wiring are up to code. Update the financial records so that they are accurate.
Business brokers do expect the market to improve in 2013. Sellers need to be prepared to update the business and provide financing in order to increase the chances of selling the business.
