While the pandemic disrupted businesses all over the country, it also gave many business owners who planned to sell their businesses hesitant to do so. Although the market for business sales in 2020 did suffer a big setback when compared to 2019, things began to turn around in the 3rd quarter of the year. Buyer demand for successful, pandemic-proof businesses helped drive the market, as did the government’s CARES Act loan forgiveness program. With Congress unable to agree on extending relief, business sales slowed again in the 4th quarter of 2020, but there are still several reasons to be optimistic if you are a business owner hoping to sell your company soon.
New Buyers Help Raise Demand
Pandemic-proof businesses have been in high demand, fetching a premium on the open market. Industries specializing in ‘essential services’ helped to increase the median sales price of sold businesses by 12% from 2019 to 2020. Many non-essential businesses have experienced a trickle-down effect with regards to demand as buyers who cannot afford to pay the premium on pandemic-proof businesses look for better deals. In a survey performed by BizBuySell, more than 80% of buyers are considering purchasing a business that has been negatively impacted by the pandemic and more than 60% would consider one that has been forced to close.
An influx of new buyers has helped fuel this demand. Among them are people who have lost their full-time jobs due to the pandemic. Many of these people have always wanted to open their own business and now see it as the best way to get back on their feet. They may have been afraid to leave their regular job before, but the current circumstances have given them an opportunity to pursue their dreams. According to a recent survey, about 21% of new buyers identify as being recently unemployed.
Existing business owners looking to expand are also entering the market. About 30% of current buyers fall into this category. These buyers are not just looking for successful businesses either. In many cases they are looking for value in good locations or useful assets such as equipment. Even failing businesses could catch the attention of an investor looking to grow their existing business. Older buyers are also re-entering the market. Almost 25% of those on the market for a business are Baby Boomers. These older entrepreneurs are looking to postpone retirement in favor of staying active and either growing their existing business or starting a new venture.
Federal Aid Helps Generate Interest and Urgency
New federal stimulus funds are also expected to keep the market for business sales active. A portion of the $900 billion recently approved COVID-relief funds will go towards extending the CARES Act Debt Relief SBA 7(a) loan program. This includes more buyer incentives that should spark an increase in interest and activity from investors, just as it did in the 2nd and 3rd quarters of 2020.
Perhaps the most attractive incentive is 6 months of payment forgiveness on SBA 7(a) loans closed after February 1, 2021 and before September 30, 2021. This includes principle and interest up to a maximum of $9,000 per month. The SBA is also waiving the guaranty fee charged to lenders and passed on to buyers for loans closed after February 1, 2021. This fee is typically 3% and is now zero. The SBA is also raising the loan guarantee to lenders from 75 to 90%. This will reduce the risk factor for lenders and allow them to fund what would typically be riskier deals. These incentives will not only help to bring more buyers to the table, but also close deals faster, as loans must be closed by the September 30th deadline in order to qualify.
Seller Optimism is On the Rise
As vaccines are being rolled out and the impact of the pandemic gradually decreases over the coming months, many businesses will regain customers and begin to recuperate. Owners who have been reluctant to sell because they are seeking to obtain full value can start to rebuild their value and plan their exits. The majority of business brokers expect the business-for-sale market to return to pre-pandemic levels within a year. If you have had to put the sale of your business on hold until you can achieve top value, now is the time to begin preparations to sell. This includes organizing your financials. Even if your business is still struggling, you could save time by preparing while attempting to rebuild its value. You can also implement some of our strategies to help boost your business’s value, so you can get it on the market as soon as possible.
If your Southwest Florida business has been affected by the pandemic, but you are still looking to sell it in the near future, contact Corporate Investment Business Brokers (CIBB) in Fort Myers. We can help you develop a strategy to increase the value of your business and get it ready to sell as soon as possible. Every situation is different, but our brokers have a combined experience of over 100 years working with small and large companies from every industry. Start with a free, no-obligation business valuation, and see if you can benefit from selling your company now.
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