With the current climate of the economy, most of the different credit markets are frozen in regards to active lending, especially for small businesses.
As an internet business broker, I am often asked about SBA financing and what types of small business loans are available for new acquisitions. Unfortunately, unless you have a good relationship with a local banker, obtaining financing for an internet based business is near impossible in today’s lending environment.
Although most internet based companies have respectable cash flows, solid historical performance and simplistic business models, the bankers who make the decisions are stuck in that “banker’s mentality” of only lending to bricks and mortar that have hard assets.
Even for online retailers who do not drop ship and actually hold healthy levels of inventory, mentioning that the business operates primarily online can essentially halt the process of getting financing. Of course before the height of the financial crisis, it was somewhat easier to get financing for internet based company acquisitions (still difficult, but at least back then it was possible), but with the credit market tightening up in all sectors, the small amount of SBA financing that is being approved is going to brick and mortar businesses.
However, there are other sources of capital aside from traditional retail bank loans or SBA financing and looking into home equity lines or other types of loans can often prove useful in coming up with the resources needed to jump on the right opportunity when it comes along.
Clients often find W3 Business Advisors by typing in keywords such as, “selling online business” or “selling internet company” and often assume that we know of lenders that specialize in internet business acquisitions, but unfortunately those types of lenders are extremely rare.
I am confident that we will see an increase in lending for internet business acquisitions in the future, but until then it will be difficult to obtain financing the “brick and mortar way”.