Results from a survey conducted by BizBuySell also suggest that seller financing has been a key element in business sales in tough lending environment.
San Francisco, CA – September 12, 2012 — BizBuySell.com, the Internet’s largest marketplace for buying or selling small businesses, released survey results today indicating most business brokers remain pessimistic regarding the availability of financing in 2012.
Of the 260 business brokers surveyed across the nation, 68.8 percent said that financing availability has not improved since 2011. That percentage is virtually unchanged from August 2011, when 67.8 percent of surveyed brokers said financing had not improved from 2010.
Respondents were not optimistic for the remainder of 2012 either as 72.9 percent of brokers expect no change in funding availability through the rest of the year. Another 19 percent believed financing availability will tighten even further.
“The business-for-sale community as a whole has become frustrated with lack of financing availability and the limited lending options available to them,” Curtis Kroeker, General Manager of BizBuySell.com said. “Buyers are ready to buy and sellers are ready to sell, but without third-party financing help, they are being forced to find new ways to piece together deals. Of course, sometimes they can’t find a solution and, as a result, some good deals aren’t getting done.”
Lending Restrictions Most To Blame
Banks took the most heat from business brokers for the lack of available financing, with 55.0 percent of respondents explaining that conditions aren’t improving because “banks continue to have more stringent lending policies.” Government actions made little to no difference, cited 40.8 percent of surveyors, and 36.2 percent noted that the loan process has become more difficult since 2011. In short, most brokers see a very tough financing environment that is discouraging potential buyers and causing them to give up looking for funding.
“All operating businesses have some kind of flaw, however, bank loan qualification requires perfect performance,” one broker said. “Moreover, strict lender requirements for the buyer to have proven experience kills many deals and prevents newcomers from entering an industry.”
Other economic factors listed by brokers included the struggling housing market.
“People can’t get home equity loans [a key historical funding source for small business purchases] because fewer people now own their home or those who do have less equity in their home,” another broker said.
Seller Financing the Solution
With third-party financing so hard to secure, most business owners have turned to seller financing as a way of enticing prospective buyers. Nearly 50 percent of brokers surveyed listed seller financing as “essential” in speeding up the business sale process and another 40 percent cited it as “important”. Only two percent found it unnecessary in today’s market.
In addition, one-third of brokers surveyed indicated that nearly all small business sales included seller financing while a further 35.5 percent of brokers indicated that most (i.e., 60 to 89 percent) of the deals they see include seller financing.
“Business owners starting to plan their exit strategy should expect that seller financing will be a required part of the sale,” Kroeker said. “We’ve seen the business-for-sale market slowly improving over the past few years and business owners’ willingness to finance is a big reason why more deals have been able to close.”
Survey data supported the fact that seller financing has become the norm. Over 53 percent of brokers noted that more sellers are willing to offer seller financing in 2012 compared to 2011.
Uncertainty Surrounds Election, Government
Nearly 92 percent of respondents anticipated either stagnant or worsening financing availability through the end of the year. Why? Over 66 percent of business brokers cited uncertainty caused by the upcoming Presidential election. Another 51.5 percent listed uncertainty caused by the scheduled end of the capital gains rate reductions at the end of 2012 and 23.5 percent noted uncertainty based on the risk of European default.
“Americans have lost confidence in the American Dream as they see small businesses pushed out by governmental support of big banks and big business,” one broker said.
Many other brokers seemed to suffer that same lack of confidence, as 40 percent of those surveyed expected it to take over two years before business transaction volumes return to pre-recession levels. Another 14.3 percent believe that transaction volumes will never return to pre-recession levels. However, some brokers remain more bullish with 39.2 percent expecting a full recovery in 12-24 months.