How will a buyer finance a transaction in Delaware?


One question we often receive from our business sellers in Delaware is, “how will the buyer finance the transaction?”

Achim Neumann, President of A Neumann & Associates, a firm with premier business brokers in Delaware and offices in many northeastern states said, “In times when financial resources are more often limited, a financial structure becomes paramount in facilitating a deal”.  “A few years ago, 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 Delaware structure further, a lender would quite often contribute about 50% to a transaction amount – in the previously mentioned 75% cash. Additionally, 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 Delaware that are cash flow-strong and have less assets, such as service and distribution businesses in Delaware, need to be matched with business buyers in Delaware that have a strong net worth position” says Neumann.  “These businesses for sale in Delaware 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 Delaware such as manufacturers—and to a certain degree retailers—have sufficient assets in place 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 more profound position.

Another mitigating factor is the SBA lending process. However, it is not the cure-all or a game changer. “Often, we are approached by business buyers in Delaware 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 an important measure for determining the interest level of banks and the underlying financial requirements for a business sale in Delaware, 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.”