What I’m about to say may sound counter intuitive, but bear with me for a moment.
When a business is being acquired or a business is purchasing assets from another business, the one main deal killer is getting the amount of required financing in place in a defined period of time.
And because many times the deal cannot or even will not be completed by the purchaser without sufficient leverage being in place, it can be hard to get deals done, especially if the amount of leverage required is considerable.
Even if you know you are strong enough financially to qualify for the required amount of business financing, the process for getting the financing can take longer than you have, especially when dealing with a bank or institutional lender.
So what can you do to avoid this problem or at least reduce the chances of it being a factor?
Choose another approach to financing.
This can involve leveraging other assets you may own that are free and clear, going to an asset based lender who has a faster application and assessment process, putting more short term cash into the deal, and so on.
The point here is that there are ways to get money in place faster than perhaps the ideal financing structure.
But once the deal is closed, you can spend whatever time is necessary to arrange a better financing set up.
Will this type of approach cost more money?
Well, potentially yes, but it depends on how you’re adding up the cost and building them into your decision making.
An asset based lending approach for instance is going to be more expensive than a bank or institutional credit facility, but if you can’t close the deal, what good is the cheaper money to you and how much opportunity cost have you lost by not moving forward.
The key here is that you’re confident in your ability to secure the right type of financing sooner than later, so the costs of taking a faster approach to closing are ones that should be factored into the initial purchasing decision.
If you buy into the argument that business financing is going to be difficult for anyone to arrange for the deal, and that its unlikely what you’re trying to acquire will be purchased for cash, then why not discount your offer to purchase to reflect the costs associated with a faster close financing strategy?
By being more creative in terms of how you price the opportunity and get the deal closed, you are putting yourself in an enviable position in the market to land great deals and avoid the frustrations of your competitors who take the traditional (but may times flawed and ineffective) approach to business financing.
In a business acquisition scenario, if you can get through the business ownership transition process quickly without negatively impacting the bottom line, you may actually be able to secure a better long term financing deal after the fact as the transition risk from the sale has been removed from the lender’s list of things to be worried about.
This approach isn’t always going to work, but if you have cash and other assets to play with, and are confident in your ability to generate positive results from your capital investments, then faster close strategies are something to think about.