Gap (Seller) Note
See for Deal Structure general discussion.
Amount: Yes for maximum Gap (Seller) Note
No for zero Gap (Seller) Note
A specific amount to limit Gap (Seller) Note.
Enter 10P to restrict Gap (Seller) Note to 10% of purchase price, 20P to restrict it to 20%, etc. Do not enter the % symbol. See User Manual Addendum by clicking Help when the feature opens.
Interest: % interest rate on the loan
Years: A number for Gap (Seller) Note amortization period
Payment: Fixed principal, variable interest (default)
This can be changed in Internal Settings.
Deferral: Advanced Features allow principal deferral.
Recommendation: For all new valuations, start with "Yes" in the Amount cell for Gap (Seller) Note. This has two benefits
1) It allows the user to determine the maximum price that can be supported, given all other inputs, and
2) If Deal Optimizer™ can not find a BVX Best Value with Yes in Gap (Seller) Note, it is an indication that input parameters are unrealistic.
Buyer can afford to pay a higher price for the business if he can get financing over and above the borrowing against the assets of the business (see Financing for borrowing against the business assets). Gap (Seller) Note, often called sub-debt financing or cash flow borrowing, is the financing that is available, in excess of the borrowing against the assets.
In large transactions seller receives "all cash" at closing because the banks are willing to provide the Gap financing. In small transactions, lenders are not willing to do so, and hence the seller winds up becoming the lender for the Gap financing. This portion of borrowing is sometimes called Gap Note, because it represents the "gap" between the seller's price expectation and, buyer's equity plus borrowing against the business assets.
- In the "amount" cell the user can enter Yes, No, 0 (zero) or a specific amount. Default value is Yes if the user does not provide any data. User can also enter percentage value in the cell by adding a P at the end of a numerical number. For example, 10P will restrict Gap (Seller) Note to 10% of the purchase price. Do not enter the % symbol.
Yes or blank cell (no data) lets BVX calculate the maximum Gap (Seller) Note that can be supported by the cash flow. "Yes" is recommended as the input for initial valuation. "Yes" helps determine the maximum price the seller can get, given all other assumptions.Yes lets BVX assume that unlimited Gap financing is available. The actual Gap financing amount is limited by ability of the business to service the debt. Yes is the default value.
No or 0 (zero) tells BVX that Gap financing is not available. This provides the lowest Enterprise Value, given all other assumptions. It is also the "cash value" of the business assuming no third party is willing to provide lending in excess of borrowing against the assets. (Note: No or 0 (zero) puts severe demand on BVX algorithm. It also extends the time to calculate BVX Best Value, and/or results into frequent . Also, a feasible solution that satisfies all parties often does not exist with No or 0 (zero). A recommended approach is to first enter Yes to determine the maximum Gap financing that can be supported, and then gradually reduce it as needed.)
Entering a specific amount tells BVX to limit Gap (Seller) Note to the amount entered. The actual Gap financing amount is limited by the business's ability to service the debt. (Note: Entering a specific amount for Gap (Seller) Note puts severe demand on BVX algorithm. See earlier discussion on entering No or 0 (zero).)
- Enter the % interest rate on the Gap (Seller) Note.
- Enter the Gap (Seller) Note amortization period in number of years.
- Default setting of BVX is to pay accrued interest and amortize the Gap (Seller) Note in uniform annual principal payments over the term of the Note beginning with the first year post-acquisition. (Example: Assume Note = 1000, interest = 10% and Years = 5. Year ? 1 debt service will be 300, consisting of 100 for interest and 200 for principal. At the end of Year ? 1 outstanding debt will be 800. Year ? 2 debt service will be 280, consisting of 80 for interest and 200 for principal). allow mortgage-type constant payment of combined principal and interest.
- BVX pre-pays Gap (Seller) Note per . The Gap (Seller) Note is pre-paid even if
it is entered as a balloon note orthe principal is deferred (see ).
- A Button for Gap (Seller) Note
- The A button turns green when this feature is in use.
- User can now restrict Gap (Seller) Note to a % of the Enterprise Value. To do so, enter a P at the end of a number to which you want to limit Gap (Seller) Note. P stands for Percent. For example, enter 10P to restrict Gap (Seller) to 10% of the purchase price. Do not enter the % symbol.
- This feature is in addition to the current features which are detailed in the screen that opens when you click on the A Button for Gap (Seller) Note.
- As before Gap (Seller) Note can be restricted only while using the Deal Optimizer feature. Otherwise Gap (Seller) Note is the residual amount required to balance the sources and uses of funds