This week Forbes magazine rated Lebanon first, Keene third, and Concord, NH seventh in the top ten of a list of United States cities “least vulnerable” to recession, in a region that is relatively insulated from the national economic crisis.  This region, and most of NH has maintained stability due to our low unemployment rate, strong banking sector, and relatively stable housing market .

 Forbes used August unemployment figures from the Bureau of Labor Statistics and 2007 Census data on median income, poverty, education levels and outstanding mortgage debt to measure the economic resilience of 141 communities with populations ranging from 65,000 to 188,000. 

Our local bankers did not pig out on sub prime mortgages, leaving that market to the mortgage brokers who are mostly gone now.  So our local bankers still have money to loan to credit worthy businesses and other customers.  They were often criticized as too conservative over the past few years, but now they are still there for us during the time most of the country is in a bad economic spasm. Credit is available!  While the media has created a real hysterical mood among the public that will hurt most of our businesses to some extent, we are still in relatively good shape in NH.

Customers who would like to own a business ought to take a look at our inventory.  If you have a down payment and a good credit rating you CAN buy a business NOW!

On WMUR on Sunday morning June 21st State Director Wit Jones of the SBA reflected the same opinion that we have been trying to get across. In NH if you have a good business to fund the local banks have the ability to finance you. He was on with Fred Kocher doing a business interview.

After outlining that there has been a big drop in SBA Guarantees this year he summarized at the end of his presentation that in New Hampshire the problem is not a real Credit Crunch but the “perception” of one that has folks not asking for loans.

Check out his comments at: http://www.wmur.com/video/16668751/index.html

Our conventional wisdom is that a buyer for a business has to have at least 20% of the price in cash to put down, plus cover hefty closing costs.

In recent press reports we are all lead to believe that there is a “credit crunch” making it hard to get any credit for anything.

In spite of this, we recently (November 2007) completed a deal where the buyer got over $30,000 at closing from the bank. He was able to put that toward the cost of inventory, which cost a lot less. In other words, the buyer came out with money left over from the financing! A true “no down payment” deal!

It takes two things (at least) to do that. A lot of home equity and a business plan for the purchase that shows enough cash flow to cover the debt and still leave enough to live on. It also helps that the buyers spouse has a job with a good income.

But the point still is made very strongly that if you have a decent deal, a good credit rating, and the desire to buy a business, there is money available! Our local banks in New Hampshire didn’t pig out on the wave of sub prime and other risky mortgages. Most of the senior bank leadership lived through the crashes of the early 1990’s and learned from the experience. Call us for the name of the friendly banker for this deal. If you are looking in his part of the state, he is a great resource.

We still ask customers what they have for resources to put down, and we need to know your financial situation before we disclose lots of information about a business. But it is not always necessary to have lots of cash if you have other resources.

Even if you don’t have home equity you can now buy a business with the funds in a 401K if you do it properly.

Interest rates are still low by historical standards, and it is a great time to buy a business!

We have had several closings recently, and are being courted by bankers looking for deals to finance.

There is a lot of gloom and doom being spread by political candidates and the national media about the housing slump, credit crunches, foreclosures, and stock market volatility that is leading to customers thinking that they can’t get financing for deals.

I recently had to convince a customer to talk to a banker to get him to believe he could get financing and get him to make an offer on a business that he wanted to buy, and now has under contract.

Here in New Hampshire our local banks by and large did not get involved in the sub prime rackets that are bringing down the speculators and large mortgage brokers, so our banks are looking for ways to put money to work, and at rates that are still bargains in historical terms for commercial business loans.

Additionally the nationwide lenders who specialize in SBA guaranteed loans are still looking for business, because the ones we deal with are unaffected by the housing market problems.

So the bottom line is that if you can swing a 20% down payment, have a decent credit score, and the desire to own one of the businesses we have for sale you should be able to get financing.

Take a look at our listings and call us if you see something you want to investigate.

One of the first things we have to ask a potential buyer is how they plan to finance the purchase of a business. This usually leads to an education session about the terms that a buyer can expect to get on a business/commercial loan. Forget everything you have read or seen on television about “no money down” deals. Be ready to pay 20% down or more, be prepared for Adjustable Rate financing, and be prepared to provide personal guarantees.

Most of the deals we broker end up with local bank financing, and once in awhile financing is provided by a national lender specializing in SBA guaranteed loans. Frequently Seller financing is involved for some portion of the deal, and some times buyers end up drawing down credit cards or going to the “bank of family”.

In cases of Seller financing we always advise sellers to get enough down so that a buyer “will bleed if they walk away”. There is no set percentage to put down, it all depends on the deal. The horror stories we hear about sellers having to take back businesses that have failed usually involve previous sales with very low down payments, so that the buyers had minimal risk.

Our first suggestion is usually to go to the institution that currently holds a mortgage on the business involved, because they know the business and will usually be the easiest to deal with (unless the business is a distressed property).

Many of the deals we handle end up with SBA guaranteed financing. The bad news about that is that it increases the cost, both closing costs and loan rates, the good news is that deals get financed when they otherwise would not. When real estate is involved the most desirable financing often involves SBA 504 program loans processed thru development organizations, and straight business loans are usually guaranteed under the SBA 7(a) program. Full descriptions of the SBA programs are available on the SBA web site, http://www.sba.gov/aboutsba/index.html. We frequently have customers tell us they have been counseled by advisers not to accept SBA guaranteed loans because of past experiences. The SBA guarantee process now is very seldom any problem, and most of the horror stories involve customers who have bad credit or checkered histories, or businesses that have either high risk or very poor histories. The SBA programs are guarantee programs that reduce a lenders risk, so either a bank or other lending institution is always the real source of the money and has to first approve the financing.
During meetings with some local bankers on August 15th the rates they were quoting for loans that fit under the 504 program were in the 7% range, less than prime rate. Rates they were talking about for SBA 7(a) loans were in the 8% range. We have recently received proposals from other institutions offering rates of 10.5% to 10.75% on packages that included operating capital and involved as little as 10% down. Rates in the range of 2.5% over prime are common in business financing. Also most business loans will be at adjustable rates, so one important thing to look for is how long the initial rate is locked in before adjustments begin. Those terms may range from 3 months to 5 years, or more.

So it pays to shop around for a package that suits your needs. But expect financing to be a lot more expensive than residential (or even commercial) real estate, and be prepared to make serious down payments.

There is a lot of mythology floating around about business financing. Instead of listening to your back fence neighbor or the bartender down the street if you have questions about financing ask one of us, or a banker, (or better yet two different bankers).