A Step-by-Step Guide to Selling Your Business with Bank Financing

Selling a business is a structured, multi-step process, especially when buyers rely on bank financing, SBA loans, or investment capital. Here’s what to expect:

📌 1. Business Valuation & Pre-Sale Preparation
Before listing your business, an M&A advisor or investment bank helps determine its market value. Factors like EBITDA, growth potential, and industry trends impact valuation.

📌 2. Marketing & Buyer Outreach
Your advisor confidentially markets the business to qualified buyers (private investors, strategic acquirers, or private equity groups) while protecting sensitive information.

📌 3. Letter of Intent (LOI) & Buyer Financing Approval
Once a buyer submits an LOI, they secure financing. This may include:

• SBA 7(a) Loans – Ideal for small business buyers (loans up to $5M).
• Traditional Bank Loans – For businesses with strong cash flow and assets.
• Private Equity or Investment Bank Financing – Used for leveraged buyouts (LBOs).

📌 4. Due Diligence Process
The buyer, lender, and advisors conduct financial, legal, and operational due diligence to verify the business’s stability.

📌 5. Purchase Agreement & Closing
Finalizing an asset sale or stock sale agreement, securing approvals, and completing the transaction.

Costs Involved in a Bank-Financed Sale

What to Expect When Selling a $1M–$10M Business

💰 M&A Advisor or Investment Banker Fees

• 5% to 10% of the final sale price for businesses in the $1M–$10M range.
• Smaller deals tend to have higher percentages due to fixed costs.

📑 Legal & Accounting Fees

• $10,000 to $50,000+ for contract drafting, due diligence, and deal structuring.

🔍 Due Diligence Costs

• $5,000 to $30,000 for financial audits, environmental assessments, and legal reviews.

🏦 Bank & SBA Loan Fees

• SBA Loan Guarantee Fee:2%–3.5% of loan amount.
• Origination Fees:1%–2% of loan amount for traditional bank financing.

💲 Total Expected Costs: Typically 7%–15% of the sale price, deducted from proceeds at closing.

Asset Sale vs. Stock Sale – Which is Better?

Understanding Deal Structures

💼 Asset Sale (Most Common for Small Business Transactions)

• The buyer purchases specific assets & liabilities, not the entire entity.
• Assets include equipment, inventory, contracts, customer lists, and goodwill.
• Sellers retain certain liabilities (e.g., taxes, legal claims).

✅ Advantages for Buyers:
✔ Tax benefits (higher depreciation deductions).
✔ Lower risk (fewer unknown liabilities).

❌ Downsides for Sellers:
⏳ More complex transition (renegotiating contracts).
💰 Potential higher tax burden (capital gains on asset sales).

📈 Stock Sale (Common in Larger Transactions)

• The buyer purchases company stock, assuming all assets & liabilities.
• Ideal when maintaining business continuity, contracts, and licenses.

✅ Advantages for Sellers:
✔ Simpler transaction (ownership change without transferring assets individually).
✔ Lower tax burden (taxed at long-term capital gains rates).

❌ Downsides for Buyers:
⏳ Assumes unknown liabilities (legal, tax, financial risks).
📊 Less tax flexibility.

💡 Which Structure is Right for You?

• If selling a small business ($1M–$5M), expect an asset sale.
• If selling a well-established company with long-term contracts, a stock sale might be an option.

How to Maximize Your Business’s Sale Value

Increase Your Business’s Worth Before Selling

📊 Improve Financial Records – Clean, audited financials increase buyer confidence.
⚙️ Automate & Streamline Operations – A systemized business attracts better offers.
👥 Develop a Strong Management Team – Buyers prefer businesses that don’t rely on the owner.
📄 Secure Recurring Revenue & Contracts – The more predictable your revenue, the higher your valuation multiple.
💡 Understand the Tax Implications – Work with an M&A tax expert to structure the deal for the best financial outcome.

Ready to Sell? Let’s Talk.

Selling a business is one of the biggest financial decisions you’ll ever make—don’t go it alone. Whether you’re considering an exit now or in the next 3-5 years, we’ll help you maximize value, streamline the process, and secure the best deal possible.