What is a trade sale and what are the benefits?
24/04/2023. If you wish to exit your business, there are a range of options available. You may consider selling your business to a third-party trade buyer in a trade sale.
If you’re considering refinancing any existing debt to make it cheaper, raising funding to support investment in the business, or using the capital to facilitate a sale of shares or dividends, this may be an option for you. It involves borrowing money from a bank or other lender (e.g. a private debt fund). Depending on the amount you’re looking for and the asset base of the business, it could be either a secured or unsecured loan.
When using debt financing, you will take out a loan or debt facility from a financial institution or bank and be obligated to make payments of interest and capital, in accordance with the agreed schedule. Most loans will not affect your ownership of the business, as long as you make the repayments on time. You will be in control and know exactly how much you need to pay which can help with budgeting and future planning.
Depending on the status of your business, you may be able to achieve a loan that has a low-interest rate. However, if you have struggled historically to borrow money from your bank, there are plenty of other options available. It’s important to not get trapped in a cycle of borrowing so make sure any deal you go into is transparent. If you are unsure, always seek advice.
Having good business credit is essential if you’re looking for low-cost, long-term debt funding. Therefore, it’s important to build your business credit as this will help establish more favourable terms with lenders.
Another benefit of debt financing is that it may attract tax deductions. As appropriate debt finance is typically classified as a business expense, the interest payment on that debt could be deducted from your business income taxes. Overall, it can reduce your net tax obligation at the end of the year. Again, make sure to seek advice from a tax professional to make sure you are following correct protocols or ask general questions about how the debt will affect your tax obligations.
Although debt finance can provide a great source of finance, it's crucial to take into account its limitations and potential risks. Some of the areas to consider include:
Understanding the funding landscape can be complex but is essential in order to make your goals achievable. There is a growing market of various finance options so it’s wise to get advice first to see which is best for you and your business. With this in mind, business owners will need to also understand the tax allowances and implications of using any debt and extracting funds.
If you’d like to know more about debt finance and how our team of deal advisory, tax and financial planning advisors can assist, please use the contact form below.
Our deal advisory, tax and financial planning advisors can support you through all stages of debt financing. We will work with you to:
This website uses cookies.
Some of these cookies are necessary, while others help us analyse our traffic, serve advertising and deliver customised experiences for you.
For more information on the cookies we use, please refer to our Privacy Policy.
This website cannot function properly without these cookies.
Analytical cookies help us enhance our website by collecting information on its usage.
We use marketing cookies to increase the relevancy of our advertising campaigns.