Buying a business with more debt than the sale proceeds will cover?

July 19, 2023

by a searcher in Loudon, NH, USA

I'm trying to figure out how to acquire the assets of an advertising agency where the owner wants out. We have agreed on terms but the issue is there is a SBA loan on the business which is greater than the amount agreed. The seller was about to close the doors on the business and walk away until we started speaking. Has anyone successfully found a way to acquire the assets of an over leveraged business short of paying off the entire loan balance prior to close? Debt restructuring? Subchapter 5 bankruptcy was mentioned to us and we're looking into that to see if that might be an option. I'm not exactly sure what time of professional we might need to drive this process but I am guessing it would be an attorney who has experience with distressed asset sales?

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

It may be a challenge to find a conventional lender that will finance a business coming out of bankruptcy. My recommendation would be to have the seller get with his current lender, explain the situation, provide them a copy of the contract, and see if the Bank and SBA will enter into an "offer and compromise" and allow him to sell the business for less than what is owed. If he can show them that he is looking to close the doors or sell to move on, he might be able to negotiate a settlement with them. He might still have some liability he could have to deal with post sale, but he could potentially negotiate a personal settlement or always go bankrupt personally for the difference. In my opinion bankrupting the business should be a last resort. It would have negative ramifications potentially on customers, vendors, and would be seen very negatively by lenders, and would make it much more challenging to successfully operate the business going forward. Please let me know if you wish to discuss in more detail here or at redacted Good luck.

Reply by a professional
from University of Southern California in North Palm Beach, FL, USA

Why?

+2 more replies.

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