How will a buyer finance a business transaction in New Jersey?


A frequent question we often get from our business sellers in New Jersey is, “how will a buyer finance a transaction in New Jersey ?”

Achim Neumann, President of A. Neumann & Associates, a firm with premier business brokers in New Jersey and offices in many of the northeastern states said, “In times when financial resources are more often limited, a financial structure becomes paramount in facilitating a deal”.  “A few years back, deals would usually consist of 75% cash to the seller and a 25% seller note. More and more frequently, we have begun to see changes to this ratio.”

When looking more closely at a financial acquisition in New Jersey structure a bit further, a lender would normally contribute around 50% to a transaction amount – in the previously mentioned 75% cash. Furthermore, where the industry type might be just one of the determining factors in defining the contributing amount, it has progressively become THE determining factor.

“Businesses for sale in New Jersey that are cash flow-strong and have fewer assets, such as service and distribution businesses in New Jersey, need to be matched with business buyers in New Jersey that have a strong net worth position” says Achim Neumann.  “These businesses for sale in New Jersey tend to have less of an asset base that can be used as financing collateral for a lender.”

Most asset-heavy businesses for sale in New Jersey such as manufacturers—and to a certain degree retailers—have plenty of assets at their disposal to allow a lender to find more collateral within the business, rather than looking at the buyer’s net worth.

In an environment punctuated by more stringent lending criteria, cash flow-based lending is increasingly in retreat and asset collateral, whether from the business/company itself or the investor, takes on a much stronger position.

Another deciding factor is the SBA lending process. However, it is not the cure-all or a majora game changer. “Often, we are approached by business buyers in New Jersey who believe that the SBA pre-qualification of our engagements makes any acquisition possible, independent of the buyer’s finances” says Achim Neumann, “but nothing could be further from the truth in this regard.”

While SBA pre-approval is very important measure for deciding the interest level of banks and the underlying financial requirements for a business sale in New Jersey, at the end of the day, it will not significantly divert from basic lending parameters.

“Our company has had the good fortune over the last three years, that we have had no deals rejected on the basis of financing” says Achim Neumann. “It has always been possible to put deals together with happy parties. Sometimes, it did require a little bit more seller financing, but ultimately, the deal was closed.”