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

Wells FargoIt’s been a year since we reviewed the local banking scene, so we offer this update.

Banks are often placed on a pedestal in the public mind, but they are like any other category of business in that 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 bank. 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 more 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 December 31, 2015.

Since our last report two banks with local branches have improved their rankings.  Community Bank and The First Bank, both based in Mississippi, have both moved up from from three stars to a four stars ranking.  But two banks lost a star. Woodforest National Bank, found in some Wal-Mart stores, dropped from five to four stars.  And First Community Bank moved down a notch to three stars.

One new bank that has entered the market since our last report is Birmingham-based Oakworth Capital Bank with a branch in downtown Mobile.  Alabama Attorney General Luther Strange is a founder of the bank and serves as a director.  The bank is top rated at five stars.

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

5 Stars (superior, top rated):

  • Bank of the Ozarks
  • Oakworth Capital Bank
  • ServisFirst Bank
  • Wells Fargo 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)
  • Community Bank
  • First Bank
  • 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
  • Woodforest National Bank

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

  • First Community Bank
  • Merchants Bank

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

Again this year Commonwealth National Bank is the only local bank with the lowest ranking.  The 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 December 31, 2015, this bank exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, very questionable asset quality, below standard capitalization and near normal liquidity.”

The “very questionable asset quality” noted by Bankrate refers primarily, it is assumed, to Commonwealth’s loans receivable and most probably represents a significant problem for any stronger banks considering a rescue by acquisition of the troubled bank.

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

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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.
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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 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 two years later soliciting his account after he had used other means to buy the business.  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
  • An independent, third party valuation of the business must meet or exceed the agreed upon acquisition cost.

Additionally, after deducting a reasonable salary for the owner, the business being acquired must produce a net cash flow of 1.25 times 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

For further reading, here are additional related articles:

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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 


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The 3 Financial Benchmarks All Business Owners Should Monitor.

Updated February 14, 2017.

Financial ratios

Many 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.

Here are related articles you might find interesting.

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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

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


This article has been updated and can now be found at

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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.

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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
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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

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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



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Selling a Business: The Issue of Buyer Acquisition Financing

Business acquisition loanPrevious articles have discussed the importance of having a good reason for selling your business, getting the business ready for salesetting the right asking price, and taking your business to market.  In this article we will talk about the question of acquisition financing for your business buyer.

Whether you want to our not, you’re going to get involved to one degree or another in the financial arrangements of your buyer.

Acquisition financing is always an issue in selling a business.  Almost all business buyers will need some amount of financing to complete the transaction.  Of all the business sales that I’ve seen, over 90% involved financing of some description.

Very few business buyers are sitting on enough cash to buy a business without financing.  People with that much money are usually “clipping coupons” and not interested in jumping into the challenges of daily business management.

So where do business buyers get the necessary financing?  There are three sources, aside from family member of the buyer who sometimes enter the situation.  Let’s discuss each:


Although most people seeking a loan to buy a business will think first of banks, I can tell you from years of business brokerage experience that banks generally do not make business acquisition loans.

That statement will surprise most people.  Once you’re in business, banks will compete for your patronage, but most will not stick their necks out in the beginning to make you a business acquisition loan.  Bank advertising would lead you to believe they would do so, but in more than 90% of the cases, they will find some reason to decline the business acquisition loan application.

The exception might be if you have a strong, years-long relationship with a bank and you can offer some other collateral such as Certificates of Deposits.  Or if the bank participates in the SBA loan program, they might be able to approve a SBA guaranteed loan (see below).

So don’t be surprised if a bank turns down your buyer.  And don’t take it as a reflection on your business or the buyer.  It’s just the way things are.

Now this is the humorous part of the situation.  It’s ironic but it has happened more than just a few times.  After your business buyer been in business for a number of months or a year or so, the same bank that turned him down for a loan to buy the business may come calling on him soliciting his banking business.  One of my buyers in this situation responded to the banker by assuming a serious air and in a somber tone, said, “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.


The Small Business Administration (SBA), an agency of the federal government, provides for business acquisition loans through its approved lenders.  The SBA generally does not make direct loans, but rather the agency partially guarantees the loan that is made by the approved lender.   It’s known as the SBA 7(a) program.

The SBA list of approved lenders includes many banks with the largest lender currently being Wells Fargo.  But some community banks also make a significant volume of SBA guaranteed loans.  Some of these lenders will include in the loan total an amount for working capital in addition to the price of the business, after down payment.  Down payment requirements range from 20% to 35% plus there are usually up-front fees paid by the buyer for various requirements.  Interest rates are competitive with the marketplace.

Your business must be growing and profitable to be approved by the SBA.  A downward trend in gross revenue or profits will usually disqualify a business.  And another disqualifier of the SBA, is the requirement that the business buyer have experience in your industry.  This requirement pretty severely limits the pool of prospective buyers for your business who can use SBA financing.

The SBA route for a business acquisition loan is sometimes frustrating because of the time, detail and documentation that are involved.  If your buyer goes this route, be patient.  And stay on top of the SBA requests for information.  The quicker you can get the information and documentation to the SBA underwriter, the quicker your loan will close.

The Seller

In the majority of the business transfers that I handle, the owner of the business finances a portion of the purchase price for the buyer.  Some sellers are initially reluctant to offer financing.  However, with a strong down payment from a buyer who has a good credit bureau report and personal financial statement, the advantages to a business seller can be significant.

Not only is the tax bite usually lower for a seller who finances, but national surveys consistently show that businesses with seller financing (1) sell for more money and (2) sell in a shorter time frame.

In one recent survey of 3,965 business sales as reported by Toby Tatum in Transaction Patterns, the median selling price of businesses with seller financing was 15 percent higher that those without it.  The average down payment on seller-financed businesses was 37 percent.

And of course, there is the obvious benefit to the seller of additional income from the interest charged on the note.  The going rate as this is being written is around 5 to 6 percent.  This is significantly more than you could earn if you invested the money in a Certificate of Deposit.

And keep in mind, we’re not talking about you financing just anybody.  We’re talking about a buyer whom you have approved after checking his credit report and references, and who has made a down payment of usually between 25% and 50% of the selling price of the business.  Plus, you have a mortgage on the business and all it’s assets for the term of the note and the personal guarantee of the buyer.

Most owner financing – though not all — is in the form of a balloon note.  The balloon note solves two opposing desires.  The buyer of the business wants to keep his payments low; however, the seller usually wants his money as soon as possible.  By amortizing the note – calculating the payments – on, say, a 12-year payback schedule, the payments are kept low.  But the inclusion of a 5-year balloon requires that the remaining balance be paid off at the end of five years.

After the new owner has been in business for five years and has built a track record for himself at the bank, he should have no trouble going to his bank and refinancing the balloon.  In the low interest rate environment of recent years, I’ve seen new owners refinancing the balloon even before it came due to save money.  The balloon note has been a win-win vehicle for both buyers and sellers.

To recap, if you are willing to consider financing the sale of your business to a credit worthy buyer after an appropriate down payment, the advantages you can usually expect are:

  •  A lower tax on the proceeds of the sale.
  • A higher selling price.
  • A shorter timeframe to close the transaction.
  • Additional income from the interest on the note.

In conclusion, please keep in mind that selling a business is not an overnight process.  In my experience of over two decades as a business broker, about six to eight months is average.

He’re another article that might be of interest: Top 3 Issues Involved When Buying or Selling a Business.

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William Bruce currently serves as president of the American Business Brokers Association.  He is a business broker, an Accredited Business Intermediary (ABI) and a business appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally for business buyers and sellers.  He may be reached at (251) 990-5934 or

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