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AHR 2023: Financing Succession Planning

Feb. 17, 2023
How to use an SBA loan to finance your preferred method of business transition.

A common problem with HVACR service companies is how to transition the business once the owner decides to retire, noted Jordan Cordero of Live Oak Bank Feb. 8 at the 2023 HR Expo in Atlanta. One of the best ways is through a Small Business Administration (SBA) 7(a) loan.

This SBA flagship program is easier for contractors to get approved than through a traditional loan. Using these funds for succession planning can provide a smoother transition of business ownership while preserving the name or legacy of the business, he added.

However, the seller cannot have any equity in the resulting company.

Sellers must understand a prospective buyer’s current business cash flow to ensure the buyer can support the asking price, the buyer’s credit and resume, the transition plan and if it requires the seller to stay on for w few months, the deal structure, and how the seller will get paid.

Cordero added that a common method of transition is seller note financing, where a seller agrees to receive a portion of the acquisition proceeds in a series of debt payments.

“If the buyer stipulates unreasonable terms for the seller note, it can be refinanced at a more reasonable rate for the seller,” he noted.

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