Top 3 Issues Involved When Buying or Selling a Business

Updated September 1, 2015

By William Bruce

America is a nation of small business owners.  In fact, there are over 22 million of us.

Why do people want to go into business for themselves?  In surveys done several years ago, the number one response was the potential for higher income.  But now in the most recent survey, the top reason was “control of one’s own destiny.”  The change is most likely a reaction to the recent economic times.

More and more individuals are now viewing small business ownership as a viable alternative to the vagaries of corporate America.  As a friend said recently, “There is no more job security.  The only job security you’ve got nowadays is the person looking at you in the mirror.”

As a business broker, I’m often asked about the issues involved in buying or selling an existing  business.  In my opinion, these are the top three issues:

1. Confidentiality

Confidentiality is critical to the successful transfer of a business.  If word gets out that a business is for sale, several things start happening and none of them are good for the seller or buyer of the business.  First, key employees start looking for other jobs, fearing that a new owner may not retain them.  In the uncertainty, customers may begin shopping elsewhere.  Suppliers get nervous.  Competitors can take advantage of the situation.

This is why a prospective business buyer will be asked to sign a non-disclosure confidentiality agreement early in the process of looking at a possible business acquisition. In this agreement, the potential buyer confirms that he/she will not disclose the fact that the business is for sale except to professional advisors.

If you show that you take the need for confidentiality seriously, you will be regarded as the professional that you are.

2. Valuation

Nothing causes the buyers and sellers of businesses more anxiety than the problem of valuation. The question of selling price haunts both parties. The seller doesn’t want to price his business too low and “leave money on the table.”  On the other hand, the buyer of the business is afraid he’ll pay too much and not get the best possible price.

Formal, fully documented business appraisals are now readily available.  In addition, there are rule of thumb guidelines that can be used to quickly estimate the value of a business.  As just one example, we know that a full service restaurant with liquor license is worth about 30% of its annual gross revenue as an ongoing business.  This assumes – big assumption – that the business is earning the average bottom line profit for its peer group.

There are rule of thumb guidelines for almost all categories of business from ice cream stands to manufacturing plants.  But again, these guidelines provide only quick estimates.  And written, fully documented business appraisals are now done by several respected national firms at a cost similar to real estate appraisals.

3. Financing

The toughest problem facing business buyers and sellers in recent years has been financing.  No question about it.

These are five possible sources for business acquisition loans:

BANKS – Although most people seeking a loan to buy a business will think first of a traditional bank loan, I can tell you from years of business brokerage experience that banks generally do not make business acquisition loans.  There are exceptions but this is more true than ever in today’s economy.

SBA – The SBA, through its approved lenders, provides business acquisition loans.  The SBA does not make direct loans, but rather guarantees a portion of the loan that is made by the approved lender.   It’s known as the SBA 7(a) program.  Wells Fargo Bank is currently the top volume SBA lender nationally.

The SBA route for a business acquisition loan is sometimes frustrating because of the time and detail that is involved.  However, keep in mind that the SBA will approve loans that others have turned down and will usually approve them with a smaller down payment.  In most cases, it’s worth the wait.

FAMILY – Many times the older generation in a family will loan the down payment or the entire amount needed to a promising member of the family’s younger generation.  If your family is willing to loan you the money, one word of advice is in order.  Have a very clear understanding as to how the debt is to be handled and put it in writing in the form of a legal note.

THE SELLER – In the majority of the business transfers that I handle as a business broker, the owner of the business finances a portion of the purchase price for the buyer.  Some sellers cannot offer owner financing for a variety of reasons, but when they can, it conveniently solves the problem of financing.

The fact that the business owner is willing to finance the sale of his company provides more than a convenient finance plan.  More importantly, it provides a strong validation of the owner’s belief that the business will support the owner and earn enough cash to pay back the loan.  You can’t get any better recommendation on the business than this.

The normal down payment for owner financing ranges generally from around 30% to 50% of the purchase price of the business.  Interest rates are generally market driven but there is more flexibility here than in other forms of financing.

401(K) FUNDS AND IRA ACCOUNTS – The use of these funds to buy a business, without tax penalty, is a fairly recent development.  Several national CPA and attorney groups have developed a plan, approved by the IRS, which allows you to use your funds for business acquisition.  There are legal and accounting fees involved, but they are a small fraction of the tax penalty that would be assessed for cashing in these accounts early.

The above ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­five sources of financing are not exclusive to each other.  I recently handled a transaction in which three of the five sources were used to buy the business.

It’s called creativity!

If you found this information helpful, please share using the social media buttons below.

For further reading, here are additional related articles:

#     #     #

William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at
If you found this content interesting, share it using the links below:
Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , , , , , , , , , , , , , , | 14 Comments

Number of Small Businesses Sold Set to Break Record

Small business sold in 2016 on pace to break record.

Small businesses sold in 2016 on pace to break record., the Internet’s largest business-for-sale marketplace, reported recently that the total number of small businesses changing hands in the first half of 2016 represents an increase from not only last year, but from the record-setting 2014 as well.  If the trend continues, 2016 will be the best year on record. aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide. A total of 1,935 closed transactions were reported in the second quarter of 2016, bringing the year-to-date total to 3,775.

The median revenue of sold businesses in the second quarter of 2016 was $441,331, while the median cash flow of the businesses was $105,000.

The median price of the sold businesses was $199,000.  The selling price computes to an average of 61 percent of revenue and an average multiple of 2.26 times cash flow.  These ratios have remained fairly consistent over the past several years indicating a stable market.

Interestingly, the highest selling prices expressed as a multiple of cash flow were in Atlanta, Chicago and Philadelphia.  The lowest were found in Boston, Phoenix and Orange County, California.

Small businesses sold in the second quarter recorded a median of 178 days on the market, a slight improvement from the 188 days in the previous quarter.  This puts the average time to sell a small business at approximately 6 months.

“The fact that small business financials have remained stable and transactions continue to grow speaks to the strong number of buyers and sellers entering today’s market,” said Bob House, President of and “Despite the many deals already completed over the past few years, there still appears to be a strong supply of listings, driven by retiring Baby Boomers, and at the same time, qualified buyers with access to capital.”

For further reading, here are additional related articles:

#     #     #

William Bruce is a business broker, an Accredited Business Intermediary and a Senior Valuation Analyst assisting buyers and sellers of privately held businesses in the valuation and transfer of ownership.  He participated the the survey quoted above.  William Bruce currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at
Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , , , , | Leave a comment

How to Use the SBA 7(a) Loan Program to Buy a Business

SBA 7(a) loans explained

The SBA 7(a) program is a popular loan option for buying a business.

Except for the SBA 7(a) program, banks generally do not make conventional loans to individuals to buy a business.  This statement will surprise a lot of people.

Most people will think first of a conventional bank loan when seeking financing to buy a business.  But I can tell you from decades of experience, this just doesn’t happen often.  The bank’s advertising will lead you to believe they do, but they will usually find some reason not to make a business acquisition loan.

However, after you’ve bought the business and been operating for a while, the irony is this:  The same banker that turned you down for a loan to buy the business will come by your office soliciting your business.

Now this is a true and humorous story.  One of my clients who had been turned down by a local bank for a business acquisition loan, had the same banker visit him a year later soliciting his account.  The business owner assumed a serious air and in a somber tone, replied, “Well now Mr. Banker, we’ll be happy to consider your application for our business. Let’s see, we’ll need your financial statement and a list of references and your business plan for five years into the future. Once we have your completed application, I’ll be glad to take it before my committee and let you know of our decision.”

The banker was taken aback.

But fortunately for individuals considering buying a business, participating banks have the Small Business Administration 7(a) loan program to offer.  Except for some specialized programs, the SBA does not make direct loans to borrowers.  Instead, the SBA guarantees a percentage of the principal amount that the bank loans to you.  In a practical sense, the SBA is co-signing the loan with you at your bank.

What is the 7(a) program?

It is the SBA’s most popular business loan program.  To be eligible for such a loan to buy a business, the borrower and the business must:

  • Operate for profit
  • Be small, as defined by SBA
  • Be engaged in, or propose to do business in, the United States or its possessions
  • Have reasonable invested equity
  • Have a minimum personal credit score of 660
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Not be delinquent on any existing debt obligations to the U.S. government

Additionally, after deducting a reasonable salary for the owner, the business being acquired must produce a net cash flow of 125 percent of debt service.

Some banks do not participate in the SBA loan programs, but fortunately many national, regional and community banks do participate.  Some banks are designated by the SBA as “Preferred Lenders” which means they have a streamlined application process and more local underwriting authority.  My experience is that you’re much better off using a Preferred Lender compared to a bank that only processes a few SBA loans per year.  The top 100 most active SBA 7(a) lenders can be found here.

Admittedly, the SBA loan application can be time consuming and sometimes frustrating.  But keep in mind, the SBA-backed loans are approved in a lot of instances where no other financing options are available.

The maximum amount that can be loaned under the program is $5 million. The average loan in fiscal year 2015 was $371,628.  Interest on the loans is negotiable with the SBA setting the maximum rate that a bank can charge.  As this is being written, the maximum rate for loans over $50,000 is 6.25 percent.

The down payment required is usually 20 percent of the price of the business being acquired.  Some lenders will allow a portion of this 20 percent to be covered by a seller note (ie: a note payable from the buyer of the business to the seller for a portion of the acquisition cost).  SBA restrictions on this seller note usually do not allow repayment of principal and interest for a stated period of time.

The length of the loan for business acquisition can be up to 10 years, or for real estate, the term can be up to 25 years.

There are fees involved in applying for a 7(a) business acquisition loan but in many cases, these fees can be added into the loan amount.

Banks love collateral and will usually reach out and grab whatever collateral is available; however, many lenders will approve a SBA 7(a) loan even when there is less than 100 percent available collateral coverage.  Some banks are more “cash flow lenders” than others, meaning that they will look more to the future earnings of the business being acquired as collateral for the loan rather than current hard assets.

My office stays up to date on the loan preferences and appetites of many lenders.  If you need a recommendation of a bank most suited for your particular situation, just shoot me an email at

#     #     #

William Bruce is an Accredited Business Intermediary and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at 


Posted in Buying or Selling a Business | Tagged , , , , , , , , , | Leave a comment

Business-for-Sale Marketplace Appears Strong in 2016

signThe market for privately held business entities is usually divided into two segments: Main Street businesses and the Middle Market.  Main Street generally refers to businesses with gross annual revenue of less than $5 million.  Above this, businesses are considered to be in the Middle Market space.

Main Street Activity, the Internet’s largest business-for-sale marketplace, reported recently that the number of annual small business transactions stabilized in 2015, ending the year down just 3.6 percent from 2014’s record high.

A total of 7,222 closed transactions were reported in 2015, nearly matching the 7,494 transactions in 2014, which was the highest total reported since BizBuySell started tracking data in 2007.  The significant drop in number of restaurants sold in 2015 accounted for the slight drop in total transactions.  Sales of all other business categories except restaurants were up over the previous year.

The median revenue of sold businesses in 2015 grew to $449,462, up from $417,562 in 2014 while the median cash flow grew to $102,000 from $100,000 in 2014. Improved financials allowed sellers to both ask for and receive a higher price for their businesses in 2015. The median sale price increased a solid 7.6 percent year-over-year, from $185,000 to $199,000.

“Overall, the business-for-sale market remains strong. Business financial indicators are strengthening and owners are receiving stronger valuations, leveling out what has been a strong buyer’s market in recent years,” said Bob House, Group GM of

The following graph shows business valuation averages of small businesses sold over the last 5 years expressed both as a percentage of annual revenue and also as a multiple of cash flow.  For a definition of cash flow, which is also referred to as discretionary earnings, please click here.



However, the graph below demonstrates how the valuation multiple of cash flow increases significantly with increasing cash flow.









“Small business indicators continue to point toward a healthy market for buying and selling,” House said. “While both sellers and buyers should keep their eye on the upcoming election and possible regulatory changes, it’s unlikely either event would unhinge what has been an increasingly active business-for-sale environment. As small business financials improve and the market finds its balance, transaction activity should continue to be strong in 2016.”

For a table of businesses by specific type that were sold on BizBuySell in 2015 and the average valuations of each type, please click here.

Middle Market Activity

The lower Middle Market overlaps the high end of Main Street but is generally regarded to consist of businesses with gross annual revenue of $5 million or above.

Although there are individual investors in the Middle Market, the dominant players in the space are Private Equity (PE) firms.  A Private Equity firm is an investment group that makes investments in privately held operating companies through various strategies including leveraged buyout, venture capital, and growth capital. Each firm will raise funds that will be invested in accordance with their specific criteria.

There were a record number of Private Equity firms organized in 2015. Globally, Private Equity groups are sitting on a record $1.3 trillion of cash and actively seeking attractive investment opportunities. Fundraising continues strong with PE groups raising $271 billion in 2015.  This situation almost guarantees that 2016 will be a very good year for sellers of middle market businesses.

Interestingly, some economists have said the downturn in the public markets (ie: stocks listed on the New York Stock Exchange and other markets) will actually fuel the flight of investors from the publicly listed securities into the Private Equity firms.

Several specialists in the Middle Market predicted that the technology, healthcare, manufacturing and telecom sectors would be particularly strong in 2016.  Conversely, they listed oil and gas, retail, and food and beverage as weak categories.

In summary

Across the board from mom and pop businesses through Main Street into the Middle Market, it appears that 2016 will be a good year for individuals who are planning to exit their business.

In a January survey of the membership of the American Business Brokers Association, which is composed of both Main Street and Middle Market intermediaries, 76 percent of the respondents said they expected 2016 to be more active than 2015.  Only one percent expected this year’s activity to be lower than last year.

#     #     #

William Bruce is an Accredited Business Intermediary and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationwide to business owners and buyers.  He currently serves as president of the American Business Brokers Association.
Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , , | Leave a comment

The 3 Financial Benchmarks All Business Owners Should Monitor.

Financial ratiosMany small to medium size business owners, including this author, get wrapped up in day to day management of their businesses to the exclusion of some important aspects of oversight.

The ultimate business benchmark is, or course, bottom line net profit.  However, the three financial ratios discussed here don’t take long to calculate and will keep you on track for a healthy bottom line number.  These are the three that should be checked frequently to monitor the ongoing health and viability of your business:

Gross Profit Margin

Gross profit is simply your total sales (less sales tax) minus the cost of products sold.  Other expenses like rent, payroll, etc. are not considered in this calculation.  The gross profit margin is usually expressed as a percentage by dividing the gross profit by total sales.

For example, if your gross sales for last year (exclusive of sales tax) were $500,000 and the cost of the products you sold was $220,000, then your gross profit was $280,000.  Dividing your gross profit by total sales, we can calculate that your gross profit margin was 56 percent.  The rest of your expenses come out of this gross profit to compute your net profit.

Most industries have benchmarks for gross profit margin.  If yours is above your peer group, you’re doing a good job.  If lower, look for ways to improve.

Current Asset Ratio

This ratio is a measure of your company’s ability to pay its bills as they become due.  It is calculated by dividing your company’s current assets by its current liabilities.

Current assets are cash in the bank, accounts receivables and any other assets you expect to be converted into cash within the next 12 months.  Current liabilities are those obligations that will become due and payable during the next 12 months.

A ratio of two or better is considered by most analysts to be a comfortable situation.  If it’s one or lower, you’ll be waking up in the middle of the night!

Inventory Turn

This calculation measures how fast you’re selling and replacing your inventory.  Inventory turn is particularly important in retail and wholesale operations, but has application in all business categories.  It’s calculated by dividing the average inventory for the time frame being analyzed by the cost of goods sold.

Again, consult your industry benchmark for what is average in your niche.  The higher the turn, the better job you’re doing in managing your inventory level.  A low number most likely means you’re carrying too much inventory for your level of sales.


In summary, don’t be intimidated by the idea of periodically calculating these benchmarks.  It’s pretty easy.  And if you need help, ask your accountant.

If you found this information helpful, please share using the social media buttons below.

Here are related articles you might find interesting.

#     #     #

William Bruce is a business broker, an Accredited Business Intermediary and a business appraiser.  His practice includes consultations nationally on matters involving business valuations and transfers.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at

Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , , , , , | Leave a comment

Banks Ranked Strongest to Weakest in Mobile and Baldwin Counties, Alabama

ServisFirst Bank is among four local banks with the top ranking for financial strength.

ServisFirst Bank is among four banks operating in Mobile and Baldwin Counties with a top ranking for financial strength.

It’s been well over a year since we reviewed the local banking scene, so we offer this update.

The available public information suggests that banks operating in Mobile and Baldwin Counties are improving in financial strength.  Of the 28 banks ranked here, seven improved their rating since our last report.  Only one bank in the two counties, Community Bank headquartered in Mississippi, lost ground.  (An Alabama-based bank by a similar name, First Community Bank, actually improved its rating.)

Banks are often placed on a pedestal in the public mind, but they are like any other category of business; some are stronger and better managed than others.

One publicly available bank rating service is  This system employs more than 20 tests to measure the capital adequacy, asset quality, profitability and liquidity of each rated financial institution. Individual performance levels are determined from publicly available regulatory filings and are compared to asset-size peer norms, industry standards and key benchmarks. Combined results form the basis for the star ratings. assigns a 1-to-5 star ranking with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or better stars with the majority of banks falling into the three to four-star range.  Ratings are believed to be reliable but the information is not guaranteed.

In addition, events since the information was collected may have altered an institution’s financial condition.  The current ratings are based on the banks’ financial statement as of March 31, 2015.

As mentioned above, seven banks have improved their ratings since our last report with each moving up one notch on the scale.  Moving up from a 3 star ranking to 4 stars were First Community Bank, Southpoint Bank, Synovus Bank (operating locally as Coastal Bank & Trust), TrustMark and United Bank.

Moving up from their previous 4 star ranking to the top 5 star category were ServisFirst Bank and Woodforest Bank (found only in some Wal-Mart stores).  These two institutions join Bank of the Ozarks and Wells Fargo as the top rated banks in the area.

The following results for Mobile and Baldwin Counties, Alabama, are based the banks’ financial statements as of March 31, 2015 as ranked by

5 Stars (superior, top rated):

  • Bank of the Ozarks
  • ServisFirst Bank
  • Wells Fargo Bank
  • Woodforest National Bank

4 Stars (sound, indicative of a sound financial condition):

  • Bancorp South
  • BB&T
  • BBVA Compass
  • Bryant Bank
  • Centennial Bank
  • Century Bank
  • Citizens Bank
  • Coastal Bank & Trust  (the trade name used by Synovus Bank in Alabama)
  • First Community Bank
  • First Federal Bank of Florida
  • Hancock Bank  (the trade name used by Whitney Bank in Alabama)
  • Iberia Bank
  • National Bank of Commerce
  • PNC Bank
  • RBC Bank
  • Regions Bank
  • Southpoint Bank
  • State Bank & Trust
  • TrustMark
  • United Bank

3 Stars (performing, indicative of a generally satisfactory financial condition):

  • Community Bank
  • Merchants Bank
  • The First, A National Banking Association (Mississippi-based, acquired locally First National Bank of Baldwin County and Bay Bank of Theodore.)

2 Stars (below peer group, indicative of a below average financial condition):

  • No banks in the local market were rated 2 stars

1 Star (lowest rated)

  • Commonwealth National Bank

Commonwealth National Bank is headquartered at 2214 St. Stephens Road in Mobile.  In the composite summary of the bank, the rating service said, “Bankrate believes that, as of March 31, 2015, this bank exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, very questionable asset quality, well below standard capitalization and lower than normal liquidity.”

In summary, please keep in mind that these ratings are based on information furnished by the banks as of March 31, 3015.  Things could have changed since then.  And there are other bank rating services whose rankings may differ.

#     #     #

William Bruce has served as a bank director.  He is a business broker, an Accredited Business Intermediary and business appraiser.  He consults nationally on issues involved in business transfers and valuation.  He may be reached at  or (251) 990-5934.  He currently serves as president of the American Business Brokers Association.


Posted in Alabama's Economy, Gulf Coast Regional & National Economy, Mobile, Fairhope & Gulf Shores, Alabama | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

The Best and Worst Franchises to Buy

Brightway Insrance is Forbes Magazine top pick for franchises costing less than $150,000.

Brightway Insrance is Forbes Magazine top pick for franchises costing less than $150,000.

As a business broker and appraiser, I’m often asked about franchises, which is why I noticed the following article.

Forbes Magazine writer Emily Inverso has just penned an interesting list of the best and worst franchises to buy.  Her rankings are based on data gathered over a five year time frame from 2009 through 2013.  Inverso’s article can be reviewed here.

The franchise offerings are ranked on several metrics including entry cost, 5-year growth rate and 5-year franchise continuity.  Franchise continuity as shown in the rankings is the percentage of franchises opened that are still in business at the end of the five year period.

The franchises are divided into three categories according to entry cost: up to $150,000, $150,000 to $500,000 and over $500,000.

The top ten in Forbes’ ranking for the under $150,000 entry cost were:

  • Brightway Insurance – sells personal and business insurance policies.
  • Maid Pro – provides residential cleaning service.
  • Right at Home – home care to seniors and disabled.
  • Discovery Map – curates quirky maps and travel guides.
  • Just Between Friends – provides consignment events for children’s and maternity clothes.
  • Seniors Helping Seniors – non-medical home care by seniors
  • BrightStar Care – homecare
  • Pop-A-Lock – locksmith services
  • Mathnasium – math tutoring
  • Weed Man – lawn care

As ranked by Forbes, the worst 10 franchises in the under $150,000 investment category were:

  • American Express Travel Services – 57% continuity for 5-year period
  • Gardsman Furniture Professionals – 47 % continuity
  • ERA Real Estate – 48% continuity
  • All Tune and Lube – 31% continuity
  • United Country – 52% continuity
  • WSI – 43% continuity
  • Handyman Connection – 31% continuity
  • Curves – 37% continuity
  • Computer Trouble Shooters – 42% continuity
  • Realty World – 29% continuity

In the mid sized investment range of $150,000 to $500,000, these were Forbes’ top 10 ranking franchises:

  • Jimmy Johns – fast food
  • Jet’s Pizza – deep dish pizza in a square pan
  • Marco’s Pizza – “authentic Italian” pizza
  • Plato’s Closet – young adult clothing
  • Dutch Bros. – drive-thru coffee shops
  • Wingstop – wings restaurants
  • Sports Clips – sports themed barber shops
  • Batteries Plus Bulbs – replacement batteries
  • Anytime Fitness – 24 hour gyms
  • Auntie Ann’s – pretzels in mall food courts

In the same size category ($150,000 to $500,00) these were Forbes worst 10 franchises to buy:

  • It’s a Grind Coffeehouse – 36 locations
  • Econo Lube N’ Brakes – 33 locations
  • Mr. Payroll – 88 locations
  • Cottman Transmissions – 67 locations
  • Chock Full o’ Nuts – 31 locations
  • Quiznos – 1,439 locations
  • Great Steak & Potato Company – 90 locations
  • Epcon Communities – 86 locations
  • Fitness Together – 207 locations
  • The Athlete’s Foot – 54 locations

For details on the above franchises and to review the ranking of franchises requiring an investment of greater than $500,000, please visit the Forbes article here.

For additional article by William Bruce on franchise risks and opportunities, please see:

Best & Worst Franchises Listed by SBA Loan Default Rates

List of Franchises Not Qualified for SBA Loans

What is a Franchise Really Worth. How to Value any Franchise.

#     #     #

William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at
If you found this content interesting, share it using the links below:


Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , | 2 Comments

Types of businesses most and least likely to be approved for SBA loan

SBA loans by type of business

SBA loans by type of business

By William Bruce

It’s well known that some types of small to medium size businesses are more likely to receive SBA loans than others.

We are indebted to George Heaslip, “The Loan Professor” for the following ranking.  George is an independent SBA loan originator of many years experience.  George is based in South Florida and can be reached at (561) 329-1315 or by email at

Based on his experience and opinion, George periodically issues a ranking of business categories most and least likely to receive SBA loan application approval.  It’s a star rating method with five stars being the most likely to receive loan approval.

The list is updated quarterly and is the only one of its kind in the U.S.  This ranking is as of April 2015.

*** A/C & Heating

** Advertising and Promotion

Zero Adult Merchandise

*** Agricultural Products and Plantings

** Aircraft Maintenance

**** Aircraft Flight Schools, with real estate

* Air Duct Cleaning

** Alarm Systems, Residential and Industrial

** Amusement/Theme Parks established with real estate

**** Animal Care & Grooming, with real estate

**1/2 Animal Grooming, no real estate

** Antiques Dealer

Zero Apartment Houses, Strip Malls, all investor properties

*** Appliance Sales and Repairs

** Art Gallery/Dealer

** Arts and Crafts

** Art Framing

****1/2 Assisted Living Facilities with real estate

**** Auto Body & Repair Shop with real estate

**1/2 Auto Body & Repair, leased facility

*** Auto Car Wash, with real estate

** Auto Broker

Zero Auto Car Wash, no real estate

**** Auto Car Wash with real estate

** Auto Salvage

Zero Auto Used Car Lots

* Awards/Prizes/Engraving

***1/2 Beauty/Spa One Stop Centers, with real estate

** Beauty/Spa One Stop, leased

*1/2 Bed & Breakfast, with real estate

**1/2 Bagel Restaurant, leased

*** Bagel Restaurant, with real estate

** Barber/Styling Shop, franchise

Zero Barber/Styling Shop, leased

***1/2 Bakery, Neighborhood, with real estate

** Barges, Sea Transport

* Billiard Parlor

**** Biohazard Cleanup Services, Per Event

****1/2 Biohazard Cleanup Services with government accounts

***1/2 Boat/Marine Manufacturer with real estate

*** Boat Storage Facilities with real estate

Zero Boat Tours

* Book Store

*1/2 Bookkeeping Services

*1/2 Boutique and Bridal Shops

***1/2 Bowling with bar & restaurant and real estate

** Bridal/Baby Shops

**** Building Component Suppliers and Installers

**1/2 Building Supplies

**1/2 Building Renovators

*1/2 Business Brokerage Companies

* Greeting Card/Gift Shop

** Carpet Cleaning Franchise

**** Car Wash, with real estate

Zero Car Wash, no real estate

Zero Printer Cartridge Refil

Zero Casino, Gambling

***1/2 Catering with real estate

** Catering, Business & Residential, no real estate

*** Cement Product Manufacturers with real estate

***1/2 Cemeteries

Zero Charter Schools

**** Child Care Centers with real estate

** Child Care Centers, no real estate

**** Children Party Center, franchise, with real estate

* Children Party Services

*1/2 Chiropractic Services

***1/2 Chropractic Services seeking a building, as opposed to current lease

Zero Churches

Zero Cigar Store

** Cleaning, Clothing

*** Cleaning Janitorial

*** Closet Interior Manufacturers

** Clothing Stores, Leased, Franchised

** Club Houses

***1/2 Cold Storage Facilities

** Coin Laundry

Zero Collection Agency

***** Commercial Building/Condo For Business Expansion

* Computer Supplies

** Construction/General Contractor

**** Consulting Companies with fine tax returns (Legal, Accounting,

*** Consignment Shops with real estate

*1/2 Consignment Shops, leased facility

*** Contractors, established with government accounts

* Contractors, other

Zero Convenience Store

* Costume Shop

*** Crane Services

***1/2 CPA Practice

** Damage Restoration

** Dance Studios, children and/or adults

Zero Data Management

*** Delis with real estate

** Delivery Services

***** Dentists/Dental Practices

**** Dental Lab

***** Distribution Centers with real estate

*** Distribution Centers, leased facility

***** Doctors

**** Doctors With Patented Product

** Document Shredding

****1/2 Dog and Cat Kennels with real estate

*** Dry Cleaners, franchised

** Dry Cleaners, not franchised

** Dry Cleaners with real estate

** Educational Schools

** Embroidery Services with commercial accounts

*** Electrical Contractors, with fine business records

Insurance, Immigration, other professional)

** Employment Placement Companies

***1/2 Environmental Cleanup

* Electronics/Computers

** Equipment Sales, Services, leased facility

*** Equipment Sales, Services, with real estate

**** Equipment Suppliers/Installers, established

* Event Planning

***** Export Products Manufacturers

**** Exterminating Companies, franchise

****1/2 Farm/Ranch Facilities and Equipment

***** Fabrication Companies with real estate

***** Factories/Manufacturing

*** Farm Equipment Sales/Servicing

**** Fast Food Franchises, with real estate, and on the Franchise Directory

* Fencing Companies

1⁄2 Film Production Companies, Independent

* Financial Services

** Firearms

*** Fireplace and Furniture Manufacturers

** Fish Farm

Zero Fishing Vessels

*** Fitness Health Club, expansion to new facility, not leased

**** Fitness Centers, franchised with trainer(s) and real estate

*** Flooring Contractor

***1/2 Floral Centers with real estate

** Flowers

**1/2 Food Business, Retail

***** Franchises with 100 or more locations, on the Franchise

***1/2 Franchises, like above, no real estate

** Franchises other with real estate

Zero Franchise, New

Zero Franchises not on the Franchise Directory

*** Freight, with real estate

Zero Fund Raising

***** Funeral Homes with real estate

*** Furniture, Retail with real estate

Zero Game Room

***1/2 Garden Centers, growing sales, with real estate

***1/2 Gas Stations/Truck Stops, with real estate

**1/2 Gas Station/Convenience Store, with real estate

Directory, and with real estate

Zero Gift Shop

*** Glass Company, Auto, Home, Industrial

**1/2 Golf Courses, established, historic sales growth

* Golf Store

** Gourmet Catering

***1/2 Gravel Pits and Dredge

*** Grocery Store with real estate

*1/2 Grocery Store, leased

* Group Transportation

** Guard Company, Security

* Guided Tour

* Gyms, not franchised

Zero Hair Salon

***** Hardware Stores, with real estate, established, no big

** Hazmat Cleanup Services

**1/2 Health Products, franchise and on the Directory

* Hobby Shops

**** Home Health Care Services

***1/2 Home Health Care Staffing Services

** Home/Condo Owners Association Management Companies

*** Home Heating Fuel distributor

***1/2 Hostels with growing rent rolls

**** Hotels, Flagship

**1/2 Hotels/Motels, other

**** Hydraulic Systems and Services, with real estate

* Ice Cream/Yogurt

Zero Import Companies

Zero Investment Properties, like strip malls, apartments

**** Industrial Buildings/Condos, 51% owner occupied

*** Injection Mold, with real estate

** Insurance Agencies, franchise

**** Interior Design Units Manufacturers

* Internet Related

** Irrigation

*** Janitorial Services, commercial accounts

Zero Jet Ski Rent

** Jewelry, Retail

**1/2 Kitchen and Bath Retail

***1/2 Kitchen and Bath Products Manufacturer

** Land for business expansion and construction to start immediately.

***1/2 Landscaping with commercial accounts

*1/2 Landscaping, residential

box competition

**** Law Firm, business expansion/new facility

Zero Limo Business

*** Liquor Store with real estate

** Liquor Store, no real estate

** Locksmith

*** Lounge/Liquor, growing business with real estate

**** Machine shop, historical growth, with real estate

** Mail Packaging/Mail Order Services

***** Manufacturing Facilities with real estate

***** Manufacturing Facilities that export

*** Marinas with real estate

***1/2 Marinas/Restaurant, with real estate

** Marine Related Sales

* Marketing Company

*1/2 Massage, body, back and feet

***** Medical Related, except chiropractic

Zero Medical Billing Software and Services

***** Medical Product Distributers, with warehouse real

***1/2 Medical Product Distributers, leased facility

***1/2 Metal Fabricator, with real estate, good track record

Zero Micro Breweries

***1/2 Millwrights, with real estate

**1/2 Mines

*1/2 Miniature Golf

Zero Mobile Homes

**** Motel for conversion to an ALF, re-hab center, or nursing complex

***** Motel, Flagship, with real estate, otherwise ***

** Moving Companies

* Movie Theaters

** Mulch Products

** Museums, for profit

** Music

***** New Building or Upgrade/Expansion

Zero Not For Profit Organizations

Zero Nail Salons

**1/2 Nursery/Plants

****1/2 Nursing Home, with real estate

*** Nursing Home, no real estate

** Nutritional Stores, if on the registry and a franchise

Zero Office Building, not 51% business owner occupied


***** Office Building/Office Condo, 51% business occupied

* Oil Wells

** Painters

Zero Parasailing

*** Parking Lot Cleaning and Maintenance

* Party Goods

**** Pawn Shop with real estate, otherwise **

*1/2 Personal Services

Zero Personnel Staffing, non-medical

**** Personnel Staffing – medical

**** Pest Control, established and franchised, otherwise *1/2

**** Pet Centers, with real estate, franchise, fine reviews

**** Pharmacies, no compounding

***** Pharmacies, compounding

** Photography services

* Pizza Shop

Zero Pressure Cleaning

Zero Phone Sales

** Pool Supplies, leased site

***1/2 Pool Supplies, establishes, with real estate

**** Pre-School with real estate, otherwise **

* Printer Cartridge Refil

* Printing and Typesetting

**** Professional Service Companies (Accounting, Legal, etc.) seeking a

***1/2 Plumbing Supply

***1/2 Pool and Supplies, no real estate

***** ` Pool and Supplies, with real estate, franchise

Zero Pool Cleaning/Maintenance

** Publishing

* Residential Realtors

****1/2 Pet Kennels and Supplies

***1/2 Recreational Facilities and Clubs, with real estate, fine records

**** Recycling Facilities

*** Restoration Services, franchise

***** Recycling Facilities with real estate

* Rental Businesses

** Repair Services, Licensed

****1/2 Restaurants, solid historical records, with real estate

*** Restaurants, franchised

** Restaurants, other

*** Retail, with real estate, solid historical records

larger facility

** Retail, no real estate

*** Roofing Contractor

**** Roofing Maintenance

* Roof Cleaners, independent, pressure washing

* Routes

* Sanitary Landfills

Zero Satellite Dishes (TV)

** Security Systems

***** Self-Storage Facilities

Zero Seven-Eleven Franchises

**** Sign Companies with real estate

*** Sign Companies without real estate

** Sight Preparation, for construction

Zero Skin & Massage

* Security Related

** Shoes/Repairs

*** Skating Rinks with real estate, food services

** Sod Distribution

*** Software Services, with three years of documented growth

***1/2 Sports Arenas

* Startups, unless customers are lined up

*** Sports Bar, established, clean records

***1/2 Sports Bar, established, clean records, with real estate

****1/2 Sports Sales Related, long business history, with real estate

*** Sports Sales Related, franchise and on the Franchise Directory

* Start Up Businesses, difficult, requires solid business plan high cash

Zero Strip Malls (considered as investment property)

** Sub (Sandwich) shops, franchise

*** Supermarkets, flag

* Surf and Active Wear

* Tailoring

Zero Tanning Salons

Zero Taxi Business

* Tax Preparation

* Teeth Whitening, non-dentist

Zero Telemarketing

* Telephone Sales

*** Tennis Clubs with real estate

***** Therapy Centers and Therapy In-Home Services

* Tobacco Related

*** Towing Services, Autos

**** Towing/Repair Services/Trucks

injection and collateral backup

*** Trade Contractors

**** Training Schools, for profit, established, with real estate

** Training Schools, other

** Transportation Services

Zero Travel Agencies

**1/2 Tree Farm, with real estate

**** Truck Repairs and towing

**** Truck and Car Washes, with real estate

***** Truck Stop, Full Service/Repair, with fuel, food, on site

* Tutoring

Zero Vacant Commercial Land

*** Vacant Commercial Land for business relocation/construction within a

Zero Valet Parking

** Variety Store, non-franchise

***1/2 Variety Store, franchise, with real estate

Zero Vending Machine Routes

***** Veterinarian

Zero Video Related

**** Uniforms Manufacturing, United States, with real estate

Zero Used Car Dealerships

***** Warehouses, for an expanding business that will occupy

** Water/Smoke Damage Restoration

** Water Purification

* Web Development and Hosting

* Wedding Planning/Gowns

** Well Drilling

*1/2 Wineries

***1/2 Wholesale Distributors, with real estate

** Wholesale Distributors, no real estate

** Yogurt Store

#     #     #

William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at



Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , , , , , , , | Leave a comment