RESTRUCTURING SELLER FINANCING AFTER A SMALL BUSINESS BUYOUT

Abstract

An option available to a small business owner who wishes to sell his company is to help a buyer with the financing. However, while intent on selling the business, she/he typically does not want to become a supplier of permanent capital. The seller can provide bridge financing until the buyer lines up a permanent capital source. This paper presents an EXCEL algorithm for estimating the amount the buyer must borrow to restructure the bridge loan. The algorithm is set up to minimize the buyer's interest expense while meeting loan covenants a lender imposes. The restructured financing can include a combination of short- and long-term loans in order to take advantage of the lower cost of short-term financing. An example demonstrates how the algorithm works.