A survey of the nation’s business brokers on the state of the business-for-sale market was recently released by BizBuySell.com, an Internet marketplace for buying or selling a small business.
Of the brokers surveyed, nearly three-fourths do not think that financing availability for business buyers has improved in 2011. Consistent with the company’s previous surveys, almost half of the surveyed brokers also agree that lack of available financing is the No. 1 factor in preventing transactions from closing today.
Nearly 80 percent of the respondents who say financing isn’t improving blame banks, explaining that they continue to have more stringent lending guidelines than in previous years. “Banks are in a “no-risk” mode and until that changes, they are going to continue to sit on their cash,” stated one respondent. A majority of the respondents – 69 percent – also said government actions are making little to no difference in the banks’ desire to lend to small businesses, while 64 percent state that the loan process has become more difficult, discouraging potential buyers and causing them to often give up looking for funding and forgo making purchases.
“These survey responses underscore just how crucial financing is to closing a deal, and how the lack of available business acquisition capital is hindering economic recovery,” says Mike Handelsman, group general manager of BizBuySell.com and BizQuest.com. “Without access to financing, unemployed workers who could otherwise contribute to the economy as small-business owners are left on the sidelines.”
Recent Economic News Likely Tied to Negative Sentiment
A majority of the survey respondents had a fairly negative outlook on the availability of funding through the remainder of the year. Nearly half predicted that funding availability will remain the same through 2011, while 42 percent anticipate that it will actually worsen through the end of the year.
The negative sentiment is likely tied to the recent changes in the U.S. economy in general, and its recent impact on the stock market. “While investor confidence was improving, recent events will cause a delay in action. Money will continue to sit on the sidelines until our policy makers start listening,” one respondent commented. Another respondent explained that “until the most recent debt ceiling crisis, I thought 2011 overall was a much stronger year, and that 2012 would be the same, if not a bit better. Now it’s anyone's guess.”
Handelsman explains further, noting, “We realized when putting the survey together that financing continues to be an issue in closing deals, and anticipated the results to reflect that. However, it’s our feeling that the recent economic environment caused the surveyed brokers to respond more negatively than they might have just a few weeks prior.”
Long-Term Outlook Slightly More Positive
Notably, despite the current negative sentiment, 88 percent of the brokers surveyed do still believe the small-business transaction market will return to pre-recessionary levels. However, half of those believe this full recovery will take more than two years. “As it becomes more obvious that recent turbulence in the financial markets is more the result of political intrigue rather than real economic situations, the general attitude of investors will improve. This will encourage lenders to become more aggressive in order to grab available market share,” said one respondent. Another explains that “retiring sellers will need at least a couple more years to regain retirement ‘readiness’ confidence from a financial-planning perspective. Other business owners will wait for a more favorable seller's market unless there are other issues (health, organizational conflict) forcing a sale.”
The importance of a healthy small-business market is one final issue that the majority of the respondents agreed upon. Eighty-five percent said that the strength of the U.S. economy will be impacted negatively unless additional financing is made available to facilitate business sales and enable successful business transitions.
