This is a good time to buy a business. I’m not just saying that because I’m a business broker, either, because the financial conditions are all there to back up what I’m saying. If you have been laid off from your job or are looking for a change; if you are an investor or a current business owner looking to expand, the timing has never been better for buying a business. But it’s not going to last.
Right now, interest rates are at the lowest they’ve been since the 1950s. When interest rates are low, your business loan doesn’t cost as much. Not only does your buying power increase, but lower interest rates allow you to maintain healthier cash flows. As the economy continues to improve, however, interest rates will rise. As they rise, your buying power will be reduced and the cost of buying and running your business will increase. If you’re wondering whether interest rates really will go up this year, it’s more than mild speculation. The rates are at the lowest they’ve been in decades and they have no where to go but up. It’s not a matter of if they’ll rise, but when.
Another benefit that a buyer has right now is great deals on SBA loans. The government has been funding the initial payment that a buyer normally has to make on an SBA loan. This can save a buyer 2% to 3.75% of the loan – which can be a significant savings to a business buyer. In addition, many SBA loans have a fixed rate over the term of the loan, which allows a buyer to lock in today’s low rates for the life of the loan no matter how high the rates rise later. As the economy recovers, however, the SBA will stop providing this incentive because it costs the government money.
Another reason to buy now is because prices for businesses have been low because of the depressed economy. As the economy improves, the prices of the businesses on the market will go up. In addition, the capital gains rate is scheduled to go up at the end of 2010, and as the capital gains rate increases, business owners will need to increase the price of their business to compensate, making it more expensive to buy the same business.
Because it can take several months to close on your business purchase, you should move quickly to make sure you can complete the transaction as soon as possible. It’s a good time to buy a business now, but the favorable conditions are not going to last indefinitely.
