During the go-go days before the 2008 Financial Crisis, money was loose and it was easy to obtain third party financing for website transactions. During that same time frame, website valuations were significantly higher as buyers were able to put down 20% cash at close and as a result, even if they paid a higher multiple, their return on investment (ROI) was very attractive.
After the financial markets collapsed, banks would not even fund brick-and-mortar deals with hard assets, let alone internet businesses with intangible assets. Money has been relatively tight since then but just recently we have been noticing some changes in trends.
Last month we closed a website sale that involved SBA-backed bank financing. There were pros and cons to this sort of deal.
The main “pro” was that the seller did not have to finance a portion of the deal and was walking away with all cash.
The main “con” was that the sale took longer than expected as the closing took place nearly two and a half months after the signing of the LOI, when we were originally told it would take 45-60 days.
As a website broker, I must take all into consideration and in this case the pros certainly outweighed the cons. Dealing with an SBA-backed bank turned out to be pretty smooth but part of the reason was the financial strength and bank relationship of the buyer. The buyer was very active and sophisticated, which surely aided the success of this website sale. If a buyer is utilizing SBA funding to purchase his first internet business and doesn’t have a substantial net worth, then we would think twice about going that route.
While the funding environment is still a bit murky, we are noticing (and experiencing first hand) some changes and for the first time in years, we are at least exploring these options.