Buyers in Marshall, TX usually finance an existing auto shop, gas station or consulting firm with three pieces: their own down payment, a term loan and often a seller note. This article walks through each piece, the due diligence a partner expects and the working capital a new owner needs after closing.
Fieldford Business Loans in Marshall, Texas explains how buyers finance an existing business, with an invented auto shop purchase priced line by line. Funding partners decide approval, amount and terms.
How a business acquisition loan is structured: down payment, seller note, loan
A business acquisition loan is usually one part of a three-part structure. The buyer puts in cash as a down payment, the seller may agree to carry part of the price as a note paid over several years, and a term loan covers the rest. Partners read the seller note closely, because some require it to wait behind the loan or to pay nothing for a period.
The price itself usually rests on the business's earnings, its equipment and inventory, and sometimes its real estate. Goodwill, the value above hard assets, is the part partners find hardest to lend against, which is one reason seller notes are common.
In practice, the order of payment matters as much as the amounts. The term loan is paid first each month; the seller note is paid from what is left, and some partners ask the seller to wait a year before any note payment begins.
Due diligence a lender expects on an auto shop or gas station purchase
For an auto shop, a partner wants the seller's tax returns and monthly sales for two to three years, the equipment list with ages, the customer mix and the lease. For a gas station, add fuel gallons and inside sales by month, the fuel supply agreement, tank records and any environmental reports.
Both are common purchases here: the county had 39 auto repair and maintenance employers and 30 gasoline stations in 2023 (County Business Patterns). The auto repair page and the gas station page list the equipment each carries.
Due diligence also covers the people. A shop that depends on one senior technician, or a station whose manager is leaving with the seller, is worth less than its numbers suggest. Ask who stays.
Buying a consulting firm: client lists, contracts and goodwill
A consulting firm has little equipment. What the buyer pays for is the client list, the contracts in force and the people who do the work. Partners look at how many clients produce most of the revenue, whether contracts can be assigned to a new owner and whether key staff will stay.
An earn-out, where part of the price depends on revenue after closing, is common with service firms. It lowers the amount borrowed at closing but adds a later payment the buyer must plan for.
Engineering and architecture firms follow the same pattern. Harrison County, TX counted 26 architectural, engineering and related services employers in 2023 (County Business Patterns), many of them small, so a single retirement can put one on the market.
An invented purchase, priced out line by line
Illustration only, invented figures: an auto shop sells for $480,000. The buyer puts down 10%, $48,000, and the seller carries 15%, $72,000, as a note; a term loan covers the remaining $360,000 (our arithmetic).
At an annual rate of 9.5% over 120 months the term loan payment is about $4,658 a month; a seller note at an annual rate of 6% over 60 months adds about $1,392 a month (our arithmetic). Together that is about $6,050 a month (our arithmetic), which the shop's cash flow after the owner's pay has to cover.
Working capital after closing: the part buyers forget
Buyers often spend every available dollar on the purchase and leave nothing for the first months: payroll during the handover, parts and supplies, deposits on utilities and insurance, and repairs the inspection missed. A thin cash cushion is a common reason a new owner struggles.
In the invented example above, setting aside $40,000 for working capital, as a reserve or a small credit line, is part of the plan. A partner may ask how the buyer will fund the first payroll before the first deposits arrive; see the working capital page.
Inventory counted at closing is a separate figure from the purchase price in many deals. Agree on how it will be counted and valued, and whether the term loan or the buyer's cash pays for it.
Questions to settle with the seller before a partner sees the file
Questions to settle with the seller before a partner sees the file:
- Will the seller carry a note, and on what terms?
- Can the lease be assigned, and for how long?
- Which equipment is owned, financed or leased?
- Will the seller work alongside the buyer for a set handover period?
- Are there customer or supplier contracts that need consent to transfer?
Written answers to these speed the conversation with any partner. The request steps show where they fit.
By Fieldford Business Loans · Updated
