AmiSight 6/13: Financing a Business Acquisition: What’s the Most Important Thing to Consider?
- Ami Kassar
- Jun 13, 2022
- 1 min read
When considering financing an acquisition, buyers often focus on the rate of their financing as the most critical issue. If one option is 5% and the other is 7%, the immediate inclination is that the lower rate is always better.
My advice is to slow down. The more critical issue is what your monthly payment will be. Sometimes it's worth it to pay more interest, to take a longer-term note with lower monthly payments.
Building a business rarely ever goes in a straight line. There will be ups and downs. And when you're going through a down period, lower monthly payments will be your friend.
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I also warn people against rushing to the finish line. You want to make sure you are inspecting assets and protecting your investment. I recently saw an acquisition where the new business owner purchased real estate that they were unable to get an inspection on, and repairs to make the space available to operate the business were far more than they had set aside. On top of that mess, the seller offered owner financing and waived a clause that protected them from past lien claims. Guess what, there was a lien on the property from the Seller’s time that stopped them from refinancing the property. It was a horrible mess created because the buyer didn’t have someone watching out for…