I'm looking at a small food processing / distribution company where the owner is selling both the business and the real estate. He is willing to sell the business standalone (which is all I want at this point), so I am curious if anyone has any advice on buying a business from someone who will also become your landlord? Any horror stories of the owner keeping their hand in the business longer than you want? Or tips on structuring the rental agreement to ensure there are no issues if he finds a buyer on the property? Thanks!
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Maybe there's a way to buy only the real-estate relevant to the business and have him retain the additional properties, but even then, it feels like I'd be signing up for a lot more than I am aiming for.
@Logan you are spot on that moving this business would not be ideal given the food-processing nature of it, but it would not be the end of the world to move the machinery to a new location if the current location is no longer tenable after a few years (2 large machines; rest relatively commoditized). 5 years feels like plenty of time to determine if this is the right space for the long-term success of the business to then enter a new lease agreement or think about buying.
One side thing to keep in mind is if you are interested in buying it eventually and you plan to use SBA financing for your business acquisition, there can be a benefit to buying the real estate at the same time you buy the business. First, it will make your offer more competitive if the seller really prefers to sell the real estate and they get offers from others willing to buy both the business and real estate. Secondly, you can do both the real estate and business in one SBA 7A loan. If the real estate is 50% or more of the total cost you can get a 25 year amortization on all of the debt combined. If it is less than 50% of the cost, you would get a blended amortization between 10 years and 17.5 years on the debt. The bank will assign 25 years to the portion of the debt that is real estate and 10 years to the portion of the debt that is business purchase, and then combine the amortization. This will typically provide anywhere from a 5% to 15% savings on monthly cash flow versus financing them both separately. Lastly, lenders usually provide slightly better pricing for deals with real estate involved as it provides additional collateral and a longer-term.
I hope this information helps. If you would like to discuss further you can reach me here or directly at --@----.com Good luck!