Lending Requirements and Credit Scores

Business owners and prospective business buyers need to be aware of recent changes in the banking environment. Whether it’s for an acquisition loan or line of credit on an existing business, lending requirements have changed significantly in the last year. The following link is to a Fort Worth Business Press article describing some of these changes, and explaining how individual credit scores are calculated and viewed by lenders.

http://www.fwbusinesspress.com/display.php?id=11149

While many people check their credit reports on a regular basis, few people know what their actual credit score is. A new service was launched this month offering free access to credit scores. Visit www.credit.com to see where your credit score ranks on the major rating systems.

Feel free to contact any of the merger and acquisition specialists at Kasper & Associates to discuss. We’re always available to assist business owners and buyers in negotiating the changing financial markets.

Stock Purchases More Attractive

Traditionally, business Sellers prefer Stock Sales over Asset Sales for the beneficial tax ramifications. On the other hand, Buyers have typically avoided Stock Purchases because of the possibility of hidden liabilities. However, recent government actions may encourage more Buyers toward Stock Purchases, at least for a short time. Attorney Mark Avery with Richards Rodriguez & Skeith LLP (www.rrsfirm.com) provided K&A with an article, “Items to Consider in the Sale or Purchase of All (or Part) of a Business in 2009”. Following is an excerpt:

“Besides the usual reasons given for doing a stock purchase, there are two other possible reasons to consider a stock sale/purchase this year. First, the American Recovery and Reinvestment Act of 2009 increased the amount of long term capital gain excluded from an individual’s income on the sale of qualified small business stock to 75% (it was 50%) if such stock is: 1) purchased between February 17, 2009 and January 1, 2011; and 2) is held for more than 5 years before being sold. Therefore, a buyer who purchases a small business through a stock sale during nearly all of 2009 and 2010 may find that the taxes which they owe upon the subsequent sale years down the road will be much lower than if they had acquired that same business through an asset purchase.

In addition, in a stock sale, the seller can allocate the value of the goodwill in the business to himself, rather than to the corporation, if the seller: 1) owns the business through a C corporation; and 2) is a key employee in the business operation. In such cases, if the purchase and sale process is handled correctly, I personally have seen millions of dollars saved by the seller in lower income taxes.”

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