10 Jul The Roundtable Looks Towards the Future
Our recent industry expert roundtable explored the key ideas and insights from our guests Kyle Griffith, Lisa Riley, Scott Mashuda, Darren Mize, Adam Debussy, Doug Whitmire, Steve Mariani, George Giles and Ron West. To read the introductory article in this series covering this event, click here.
Seller Financing
Seller financing was a key topic for the roundtable. Panelists noted that 70% of brokers are finding that seller financing is a must. However, not all brokers push their clients towards seller financing.
Steve Mariani had a range of thoughts on this topic. He explored the link between interest rates and valuations stating, “I’ve always preached that interest rates do not affect valuation, because I can’t determine whether the buyer is financing it or not financing it, and whether he is or not shouldn’t affect the value of the business in my opinion.” He continued that for smaller transactions, he believes the sale should be structured in such a way that SBA financing can be secured. For example, he pointed out that a 10-year straight interest-bearing note is never going to be eligible for SBA financing.
Mariani also noted that buyers can get hung up on this issue and struggle with the idea of having a 7 or 10 percent interest rate, but there are creative ways of dealing with these interest rates. He concluded that interest rates are not “life-threatening” if handled correctly. An experienced broker can help buyers and sellers navigate the situation in the best way possible.
New Rules Coming Down the Pipeline
New rules are coming into effect on August 1st. One change is that sellers may stay on as key employees for an unlimited period of time. This can play a role in the licenses required for a given business.
Secondly, personal liquidity rules have been removed. This change is significant. As Mariani noted, “Personal liquidity rules were such that if they have too much personal liquidity, the prospective buyer could become ineligible for SBA.” The change to personal liquidity rules means that high net worth individuals have more flexibility.
Third, there are new rules that impact franchises. Mariani explained, “The franchise registry is an online live database where any lender could go in and determine whether a franchise is eligible for SBA financing or not and so in minutes.” The SBA has changed how this registry operates. Now, lenders will be able to determine on their own whether or not a franchise is eligible.
An Upward Trend in Transactions
Adam Debussy, the Director of Marketing at BizBuySell jumped in to discuss the Insight Report. He noted that 2022 was a record year, but the rapid rate hikes meant that the bottom fell out in Q4. He pointed out that, “Q1 2023, we started to elevate back upwards.” Debussy concluded that on a year over year basis, transactions will likely be close to what they were for 2022’s second quarter. He hopes that people are going to realize that higher interest rates are likely going to be a mainstay for quite some time.
The panel concludes that Baby Boomers are exhausted from the current climate of “one thing after another,” and will likely be looking for the exit soon. The additional factor of next year being an election year will likely play a role moving forward.
