know how to position your transaction in the most favourable way. They will also manage the relationship for the Buyer so they can stay focused on the details of the business sale. Types of Debt Funding - There are several types of debt funding, we will cover a few of the more common types here: Asset Funding - This is the most straightforward type of funding where the lender takes some of the assets of the business as a guarantee. The most common assets that come to mind are heavy machinery, vehicles, excess stock or other hard items. However, if there is a default, liquidating these items is difficult and so the lender will generally only give a small % of the real value of these items as collateral, maybe 10-30% depending on the nature of the asset. Most businesses do not have these types of hard assets in any significant amount anyway so this type of lending is not that common in any significant amount relative to the size of a business purchase. The biggest asset that is actually used as collateral for many businesses is the debtor book. The debtor book operates as almost cash as these outstanding balances will generally be paid in 30-60 days and turn into cash making this relatively low risk for the funder so the interest rates are lower and they are easier to get. Typically a lender will lend between 50% - 85% of the debtor book balance depending on the perceived risk. For example, a company with debts to government entities that always pay their bills will be on the high end. A building contractor with a debtor book to mostly other building contractors will be on the lower end. Debtor book financing generally does not involve the funder having any engagement with the customer or in fact, the customer knowing this type of funding has been implemented. This is important for most business Sellers as they will not want to upset their customer base.
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