Selling a business | Georgia Association Of Business Brokers

by Ron WestDecember 12, 2020 Buyer Articles, Buyer FAQ, Buying a Business, Seller Articles, Seller FAQ, Selling a business0 comments

Getting the Most Out of Confidentiality Agreements

When it comes to buying or selling a business, a solid confidentiality agreement is a must. A key way that business brokers and M&A advisors help buyers and sellers is through their extensive knowledge of confidentiality agreements and how best to implement them. In this article, we will give you an overview of what to expect out of your confidentiality agreements.

A confidentiality agreement is a legal agreement that essentially forbids both buyers and sellers, as well as related parties such as agents, from disclosing information regarding the transition. You should have a confidentiality agreement in place before discussing the business in any way and especially before divulging key information on the operation of the business or trade secrets.

While a confidentiality agreement can be used to keep the fact that a business is for sale private, that is only a small aspect of what modern confidentiality agreements generally seek to accomplish. Confidentiality agreements are used to ensure that a prospective buyer doesn’t use any proprietary data, knowledge, or trade secrets to benefit themselves or other parties.

When creating a confidentiality agreement, keep several variables in mind:

What information will be excluded
What information will be disclosed
The term of the confidentiality agreement
The remedy for breach, and
The manner in which confidential information will be used and handled.

Any effective confidentiality agreement will contain a variety of key points. Sellers will want their confidentiality agreement to cover a fairly wide array of territory. or example, the confidentiality agreement will state that the potential buyer will not attempt to hire away employees. In general, this and many other details, will have a termination date.

The specifics of how confidentiality is to be maintained should also be included in the confidentiality agreement. Parties should agree to hold conversations in private; this point has become increasingly important due to the use of mobile phones and in particular the use of mobile phones in out-of-office locations. Additionally, it is prudent to specify that principal names should not be used in outside discussions and that a code name should be developed for the name of the proposed merger or acquisition.

Safeguarding documents is another area that should receive considerable attention. Digital files should be password protected. All paperwork should be kept in a safe location and locked away for maximum privacy when not in use.

In their enthusiasm to find a buyer for their business, many sellers have overlooked the confidentiality agreement stage of the process. Most have regretted doing so. A confidentiality agreement can help protect your business’s key information from being exploited during the sales process. Any experienced and capable business broker or M&A advisor will strongly recommend that buyers and sellers always depend on confidentiality agreements to establish information disclosure perimeters.

Tsyhun/BigStock.com

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by Diane LoupeNovember 4, 2020 Buyer FAQ, Buying a Business, COVID-19, Economic News, SBA Loans, Selling a business, Small Business, Uncategorized0 comments

Guidelines on PPP Loans When Selling a Business

Kim Eells, Senior Vice President and Small Business Administration (SBA) Business Development Officer for Georgia Primary Bank.

Kim Eells, Senior Vice President and Small Business Administration (SBA) Business Development Officer for Georgia Primary Bank, discussed new SBA guidelines on dealing with Paycheck Protection Program loans when selling a business at the Nov. 10 GABB meeting. Kim is an Affiliate Board member of GABB.

The SBA issued guidelines on Oct. 2 that provide a framework to determine whether SBA consent is necessary when selling a business or other entity that has received PPP funds.

Listen to an audio recording of Ms. Eells’ remarks at this link.

She recommended that sellers with PPP loans should ask forgiveness, a process that could take up to five months, but in practice usually takes less time. The SBA is also issuing a new form, 3508s which will make it easier for entities with PPP loans under $50,000 to apply for forgiveness.

If a business has an EIDL loan, she recommends postponing an application for PPP forgiveness.

GABB Affiliate attorney Wendy Kraby said that for the sale of a business with an SBA loan, “I am seeing the banks want to see very specific language in the Purchase Agreements detailing the requirement of an Escrow Account. The bank then wants to see that Agreement (before it is signed) to make sure it meets the bank’s requirements. Because of this, it is very important to contact the bank at the very beginning of planning for sale AND before a PSA is signed.”

Ms. Kraby described a typical provision to handle a PPP loan in a Purchase Agreement. “The Seller has taken out a Paycheck Protection Program loan in the amount of $______________with XXX Bank. Seller has completed and submitted a PPP Forgiveness Application along with all supporting documentation. At Closing, Seller shall deposit into an Interest Bearing Escrow Account controlled by XXX Bank Corporation an amount equal to the outstanding balance of the PPP loan pursuant to the Escrow Agreement, attached hereto as Exhibit “D.”

The Georgia Association of Business Brokers, or GABB, is the state’s premier organization devoted to buying and selling businesses and franchises, and operates the state’s only real estate school dedicated to business brokering. For more information about GABB, please email diane.loupe@gabb.org, call or text 404-374-3990.

“The PPP has provided 5.2 million loans worth $525 billion to American small businesses, providing critical economic relief and supporting more than 51 million jobs,” said Treasury Secretary Steven T. Mnuchin in a press release.

The SBA specifies that “There are different procedures depending on the circumstances of the change of ownership, as set forth below. In all cases, the PPP Lender is required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied.”

1.The PPP Note is fully satisfied. There are no restrictions on a change of ownership if, prior to closing the sale or transfer, the PPP borrower has:
1. Repaid the PPP Note in full; or
2. Completed the loan forgiveness process in accordance with the PPP requirements and:
  1. SBA has remitted funds to the PPP Lender in full satisfaction of the PPP Note; or
  2. The PPP borrower has repaid any remaining balance on the PPP
The PPP Note is not fully satisfied. If the PPP Note is not fully satisfied prior to closing the sale or transfer, the following applies:
1. Cases in which SBA prior approval is not required. If the following conditions are met for (i) a change of ownership structured as a sale or other transfer of common stock or other ownership interest or as a merger; or (ii) a change of ownership structured as an asset sale, the PPP Lender may approve the change of ownership and SBA’s prior approval is not required:
2. Change of ownership is structured as a sale or other transfer of common stock or other ownership interest or as a merger. An individual or entity may sell or otherwise transfer common stock or other ownership interest in a PPP borrower without the prior approval of SBA only if:
  1. A. The sale or other transfer is of 50% or less of the common stock or other ownership interest of the PPP borrower³; or
  2. B. The PPP borrower completes a forgiveness application reflecting its use of all of the PPP loan proceeds and submits it, together with any required supporting documentation, to the PPP Lender, and an interest-bearing escrow account controlled by the PPP Lender is established with funds equal to the outstanding balance of the PPP loan. After the forgiveness process (including any appeal of SBA’s decision) is completed, the escrow funds must be disbursed first to repay any remaining PPP loan balance plus interest.
    1. In any of the circumstances described in a) or b) above, the procedures described in paragraph #2.c. below must also be followed.
3. Change of ownership is structured as an asset sale. A PPP borrower may sell 50 percent or more of its assets (measured by fair market value) without the prior approval of SBA only if the PPP borrower completes a forgiveness application reflecting its use of all of the PPP loan proceeds and submits it, together with any required supporting documentation, to the PPP Lender, and an interest-bearing escrow account controlled by the PPP Lender is established with funds equal to the outstanding balance of the PPP loan. After the forgiveness process (including any appeal of SBA’s decision) is completed, the escrow funds must be disbursed first to repay any remaining PPP loan balance plus interest. The PPP Lender must notify the appropriate SBA Loan Servicing Center of the location of, and the amount of funds in, the escrow account within 5 business days of completion of the transaction.

Cases in which SBA prior approval is required. If a change of ownership of a PPP borrower does not meet the conditions in paragraph #2.a. above, prior SBA approval of the change of ownership is required and the PPP Lender may not unilaterally approve the change of ownership.
To obtain SBA’s prior approval of requests for changes of ownership, the PPP Lender must submit the request to the appropriate SBA Loan Servicing Center. The request must include:
1. the reason that the PPP borrower cannot fully satisfy the PPP Note as described in paragraph #1 above or escrow funds as described in paragraph #2.a above;
2. the details of the requested transaction;
3. a copy of the executed PPP Note;
4. any letter of intent and the purchase or sale agreement setting forth the responsibilities of the PPP borrower, seller (if different from the PPP borrower), and buyer;
5. disclosure of whether the buyer has an existing PPP loan and, if so, the SBA loan number; and
6. a list of all owners of 20 percent or more of the purchasing entity.

If deemed appropriate, SBA may require additional risk mitigation measures as a condition of its approval of the transaction.

SBA approval of any change of ownership involving the sale of 50 percent or more of the assets (measured by fair market value) of a PPP borrower will be conditioned on the purchasing entity assuming all of the PPP borrower’s obligations under the PPP loan, including responsibility for compliance with the PPP loan terms. In such cases, the purchase or sale agreement must include appropriate language regarding the assumption of the PPP borrower’s obligations under the PPP loan by the purchasing person or entity, or a separate assumption agreement must be submitted to SBA.

SBA will review and provide a determination within 60 calendar days of receipt of a complete request.

For all sales or other transfers of common stock or other ownership interest or mergers, whether or not the sale requires SBA’s prior approval. In the event of a sale or other transfer of common stock or other ownership interest in the PPP borrower, or a merger of the PPP borrower with or into another entity, the PPP borrower (and, in the event of a merger of the PPP borrower into another entity, the successor to the PPP borrower) will remain subject to all obligations under the PPP loan. In addition, if the new owner(s) use PPP funds for unauthorized purposes, SBA will have recourse against the owner(s) for the unauthorized use.If any of the new owners or the successor arising from such a transaction has a separate PPP loan, then, following consummation of the transaction: (1) in the case of a purchase or other transfer of common stock or other ownership interest, the PPP borrower and the new owner(s) are responsible for segregating and delineating PPP funds and expenses and providing documentation to demonstrate compliance with PPP requirements by each PPP borrower, and (2) in the case of a merger, the successor is responsible for segregating and delineating PPP funds and expenses and providing documentation to demonstrate compliance with PPP requirements with respect to both PPP loans.The PPP Lender must notify the appropriate SBA Loan Servicing Center, within 5 business days of completion of the transaction, of the:
1. identity of the new owner(s) of the common stock or other ownership interest;
2. new owner(s)’ ownership percentage(s);
3. tax identification number(s) for any owner(s) holding 20 percent or more of the equity in the business; and
4. location of, and the amount of funds in, the escrow account under the control of the PPP Lender, if an escrow account is required.

PPP Loans Pledged in Paycheck Protection Program Liquidity Facility (PPPLF)

If a PPP loan of a PPP borrower associated with a change of ownership transaction was pledged by the PPP lender to secure a loan under the Federal Reserve’s PPPLF, the lender is reminded to comply with any notification or other requirements of the PPPLF.

SBA Procedural Notice: SBA PPP Loans and Change of Ownership

by Diane LoupeOctober 2, 2020 Buying a Business, COVID-19, Financing a Business Sale, Selling a business, Uncategorized0 comments

Closing Transactions with PPP Loans

By Steve Mariani, Owner
Diamond Financial Services

Steve Mariani Now that the six-month payment incentive provided by the C.A.R.E.S. Act is off the list of our items of immediate attention, our focus returns to closing transactions that include Paycheck Protection Program, or P.P.P. loans. If you have closed any SBA transactions to date that include a P.P.P. loan, then you may have experienced the chaos and confusion on the forgiveness aspect that many lenders, sellers, and attorneys currently struggle with. Today, I will attempt to explain the methods that we have seen be used to help close transactions during these current conditions. PLEASE NOTE: We are not confirming that any of these methods are acceptable to SBA or will not cause a decline in forgiveness. These are only the ways we have witnessed these transactions close with P.P.P. loans in place.

The main concern is that if a seller retains the corporation and P.P.P. loan liability post-closing, then the buyer should have no exposure in the future (in theory). In most cases this would be true, but what many are not considering is that this is the Federal Government and they can go past a transaction if they deem it invalid. Hence the surrounding concern and nervousness. I will not go into specifics on this today, but you should know there is some level of validity to the above concern.

The SBA held a lender conference call in August, and on that call, they explained how specific guidelines for acquisitions that included P.P.P. loans would be published and sent out to all lenders within days. Days soon became weeks and as of today no such publication has been circulated. With no actual guidelines, aside from the two letters we have secured from District Representatives, the lenders have been on their own in creating safeguards surrounding these P.P.P. loan liability exposures to help clients close acquisition transactions. Below, I will describe the top four methods lenders utilized to close loans since March.

Our top choice from an active lender of ours allows an addendum to be included in the APA which simply states the following: “any Liabilities of the Seller or Principals associated with the Payroll Protection Program, including but not limited to any loans. Any Payroll Protection Program loan is and shall remain the exclusive obligation of Seller and Principals and is not being assumed by Buyer in this transaction.” By adding this addendum, our lender allows all transactions to close. A simple solution that many lenders choose not to utilize.

A more popular method is based on a version of an SBA letter that was circulated that requires an escrow account be set up with the seller’s P.P.P. lender matching the P.P.P. exposure amount, with deposits made using the seller’s personal funds. This seems to be the most accepted work around and another version of this makes it even easier. Some lenders will allow this escrow account to be held by an attorney until P.P.P. loan forgiveness is complete.

The least favorite of our available options, based off an SBA district letter, demands the P.P.P. loan be assumed 100% by the buyer and demands that the loan be processed GP. GP is when the entire loan package is sent directly to SBA’s central processing center for a complete review and subsequent eligibility determination. Most lenders will avoid this whenever possible as utilizing their PLP status allows them to bypass this step. The SBA GP program typically adds between one and three weeks to the overall loan process, time that most transactions would prefer to not waste.

If you are handling a transaction that includes a P.P.P. loan, be sure you explore the details of that loan to ensure the seller understands any concerns surrounding the forgiveness. If the buyer is securing an SBA loan for the acquisition of a business, be sure to address the same with the buyer’s SBA lender. Understanding the lender’s requirements and being sure all parties agree upfront will be critical to closing your deal and save you countless hours in the future.

The letters and documents mentioned above can all be found here. As always, our highly skilled Diamond Financial staff is always here to answer any specific questions regarding SBA transactions at any time. For more specific answers on these or any other SBA rules, please contact us at askdiamond@easysba.com, a no cost, no obligation, email solution to answer all of your SBA questions.

Diamond Financial specializes in larger goodwill transactions and we are always happy to share the information that makes them happen. Call us and experience the power of the experts and our three day yes or no guaranty!

Mr. Mariani, a board member of the International Business Brokers Association (IBBA), spoke to the GABB in January about compiling an offering memorandum. GABB Affiliate Member Bruce Winston is president and CEO of Diamond Financial Services Georgia, LLC.

by Ron WestOctober 2, 2020 Seller Articles, Selling a business, Small Business0 comments

How Should Your Company Deal with an Orphaned Product?

Keeping a product or service around that isn’t pulling its weight might prove to not be a very good idea. You may have invested a good deal of time and resources into its development, but if that product or service is no longer contributing to your bottom line, it might be time to cut it loose. Even if your product is pulling its weight, but doesn’t fit into your overall core business, then you should still consider getting rid of this “orphaned product.” Let’s take a look at some of the reasons you might want to keep or remove, an orphaned product from your company.

Reasons why an orphaned product might be bad for a company:

An orphaned product line can distract from core business operations.
Funds allocated to an orphaned product could be used instead to build the core business or make improvements that are not in the current budget.

However, one company’s orphan could be another company’s adoptee. Some buyers, companies and private equity groups are looking for product lines they can use to augment their existing ones. In fact, some buyers may even want to build a new business around a given product line.

Of course, it isn’t always as simple as “pulling the plug” and moving on. It is important to step back and consider the negative impacts of jettisoning an orphaned product, such as the fact that the product line could have key employees attached to it. Or there could be company culture issues related to removing the product, such as causing disruption within your company. You must also consider if the orphaned product could ultimately play a role in the sale of your company.

At the end of the day, an acquiring company may feel that the orphaned product line is a great fit for their existing distribution chain. Additionally, your offering might fit into a new product line that the acquiring company has launched. It is important that you evaluate every aspect of an orphaned product before making the decision to remove it from your company.

Understanding the needs and goals of your most likely buyers should play a role in your decision making. Working with an experienced business broker is an easy way to increase your chances of making the right decision.

Kishivan/BigStock.com

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by Diane LoupeSeptember 7, 2020 business coach, COVID-19, GABB Meetings, Marketing, Seller Articles, Seller FAQ, Selling a business, Small Business, Uncategorized0 comments

The Corona Close: How to Prospect Effectively Today

The Corona Close: How to Prospect Effectively in Today’s New Market

Sales coach Dan Jourdan says now is a great time to be reaching out to prospective customers. Why? “Everybody is waiting for something to happen,” Jourdan of “Sales Arbiter” told attendees at the Sept. 15 virtual meeting of the Georgia Association of Business Brokers.

View a recording of the meeting at this link.

While getting referrals is always a great way to get new clients, Jourdan — or “The Deej” as he is known — said cold-calling prospects is also a good strategy. He encouraged entrepreneurs to prospect by using publicly available information about business owners, such as Reference USA, a business database available through public libraries.

Another tip, avoid contacting prospects with messages laden with words such as “I, we, us.” “Those three words literally repel your prospects,” he said. Instead, try “you, yours, y’all.”

The seven magic words for breaking the ice? “I wonder if you could help me?” Most people will respond to people seeking help. Another good ice-breaker: “I wonder if you could give me some advice?” Queries that criticize a potential clients business or web page are huge turn-offs.

One recent solicitation from a potential client included a video clip, which instantly puts a potential partner into the client’s office. “It’s like you met them without meeting them,” he said.

Videos and cold calling are great ways to prospect.

“If you make enough noise, you’ll get more referrals,” Jourdan said.

Jourdan is a salesman who has successfully started from scratch, built up, and sold five out of six of his own businesses. But he is not a businessman, he is a salesman. The one business that failed was when he tried to be a real human, instead of a salesman. With his current firm, “Sales Arbiter, ” Dan and his partner Crispin Cruz work with small businesses in town that want to have self-functioning, highly profitable sales organizations within their company in which the owner is not involved. This way business brokers can sell the companies for more money! His business philosophy is a cross between Confucius and Robin Williams. Dan lives in Georgia with his wife Sharon and two children Matthew and Sophie.