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A common problem with HVACR service companies is how to transition the business once the owner decides to retire, noted Jordan Cordero of Live Oak Bank Feb. 8 at the 2023 HR Expo in Atlanta. One of the best ways is through a Small Business Administration (SBA) 7(a) loan.
This SBA flagship program is easier for contractors to get approved than through a traditional loan. Using these funds for succession planning can provide a smoother transition of business ownership while preserving the name or legacy of the business, he added.
However, the seller cannot have any equity in the resulting company.
Sellers must understand a prospective buyer’s current business cash flow to ensure the buyer can support the asking price, the buyer’s credit and resume, the transition plan and if it requires the seller to stay on for w few months, the deal structure, and how the seller will get paid.
Cordero added that a common method of transition is seller note financing, where a seller agrees to receive a portion of the acquisition proceeds in a series of debt payments.
“If the buyer stipulates unreasonable terms for the seller note, it can be refinanced at a more reasonable rate for the seller,” he noted.
Kelly L. Faloon | Freelance Writer/Editor
Kelly L. Faloon is a contributing editor and writer to Contractor, Contracting Business magazine and HPAC Engineering and principal of Faloon Editorial Services. The former editor of Plumbing & Mechanical magazine, Faloon has more than 26 years of experience in the plumbing and heating industry and more than 35 years in B2B publishing. She started a freelance writing and editing business in 2017, where she has a varied clientele.
Faloon spent 3 1/2 years at Supply House Times before joining the Plumbing & Mechanical staff in 2001. Previously, she spent nearly 10 years at CCH/Wolters Kluwer, a publishing firm specializing in business and tax law, where she wore many hats — proofreader, writer/editor for a daily tax publication, and Internal Revenue Code editor.
A native of Michigan’s northern Lower Peninsula, Faloon is a journalism graduate of Michigan State University. You can reach her at [email protected].