Buying another HVAC business can be the fastest way to expand in your market. When the right purchase opportunity comes along, you’ll need to be ready to move quickly.
I work closely with Brandon Bolen, a banker with Live Oak Bank based in Wilmington, North Carolina. They do business in all 50 states and top the list of the 100 most active SBA 7(a) lenders by amount approved. Branden’s been with the company for seven years, and he specializes in HVAC and plumbing businesses.
He recommends that you pay a visit to your banker early in the process. Your banker can explain the loan application process and help you understand what you’ll need to qualify for a loan. Generally, the bank will ask for your corporate tax returns for the last three years and the year-to-date profit and loss statement for your business. They’ll also look at your personal creditworthiness through income tax returns, credit score, and other documentation of your financial position.
Banks look for a strong balance sheet, good business credit, adequate cash flow, and the ability to pay (and take on new) debt. SBA loans require the borrower to be a personal guarantor. Bolen says that once the loan application is complete, they can issue a commitment letter within a couple of weeks. Collecting all the documentation to prepare for the closing takes an average of 45 days. Most business loans are issued for 10-year terms.
SBA 7(a) loans for existing HVAC companies to acquire other HVAC companies have the opportunity to receive financing where a down payment is not required if the acquisition meets the necessary requirements. There are a variety of ways to structure a loan where the loan structure may include a combination of bank financing, seller financing and if required by the bank, a down payment. If the seller is willing to finance a portion of the sale, it does leave them with a strong interest in the success of the business moving forward, but each transaction and deal structure is different.
Interest rates for business loans vary based on many factors, including the size and term of the loan, the amount of the down payment, and the owner’s credit score. But interest rates have been steady at the mid to high 5 percent range for the past year after dropping during the pandemic. (Variable rates are also available.)
A qualified business broker can help you find a business for sale and determine the best fit for your business. Having your banker on board before you begin the discussion with a broker will establish you as a serious buyer and move the process along more quickly and smoothly.
Bolen says that if a buyer comes in with a business he’d like to purchase, the bank will run the numbers to make sure the loan meets their lending standards. If the loan doesn’t meet the standard, the banker may ask for changes, which might include renegotiating the sales price, the down payment, or other terms. Costs such as closing fees, attorney’s fees, and the bank’s valuation of the business are generally wrapped up into the loan and not required out of pocket from the buyer, Bolen says.
If you’re getting ready to look for a business to buy, you can do some things in advance to prepare. If your personal or business credit scores have room for improvement, spend time building them up. Make sure your financial records are in good order and up to date, including sales and revenue forecasts for the next few months. Identify and value assets you are willing to offer as collateral.
And of course, talk to an HVAC-specific business broker who specializes in the type and size of business you’re looking to buy. Having a team of professionals on your side, both banking and brokering, will help you find the right company at the right time to help you grow.
About the author: Patrick Lange
Patrick Lange is an experienced HVAC-specific business broker with Business Modification Group based in Horseshoe Beach, Florida. He has a unique background in financial planning and has even owned an HVAC business himself. This makes him well suited to working with some of the most successful HVAC business owners in the country. Specializing in companies with 1-10 million dollars in revenue, he maintains a network of buyers and sellers in the industry. He has sold more HVAC businesses than any other broker in the United States over the last three years and is currently the Vice President of the Business Brokers of Florida (North Florida District.)