Where to Get Money to Buy a Business
Business acquisition loans are loans meant for purchasing an existing business or opening a new franchise. Many lenders will prefer financing the buying of an existing business that has a proven record, to funding a startup that they are not sure of its projections. Lenders are risk averse and on top of a good credit score, offering collaterals and having a proven record will make them more comfortable. All these requirements are available in an existing business.
Before your loan search:
It is important to note that getting a loan to buy a business is difficult but not impossible. Lenders will put a lot of factors into considerations before approving you for a business acquisition loan. Lending institutions will look into your financial history and the history of the company being acquired. You also have to show your plans, ideas, and qualifications for making the business prosperous to pay the loan.
Your potential lender will also look into the firm’s value. It is difficult for a business with a bad name recognition and goodwill to succeed. Many lenders will shy away from financing the acquisition of such companies because they believe that such qualities may not transfer with change of ownership.
Below are some alternatives that you can use to acquire a loan to buy a business and their eligibility criteria.
If you are looking to add another business to your portfolio, then the best alternative to source for credit is through SBA loans. The government guarantees these loans, they have the most competitive rates and the repayment period is much longer.
Getting qualified for SBA loans for business acquisition is much easier because the lender can measure the ability for the firm to pay up the loan through the track record, unlike a startup where the lender will only work with projections alone.
To be eligible for SBA loans:
- You must prove that the business you plan to acquire is financially secure to repay the loan.
- Your credit score should be above 680.
- Your lender will need a down payment of around 10-30%.
- You should have sufficient security.
- Having management or industry experience of 3-5 years is a plus.
The limitation of this kind of funding is the difficulty in qualifying for the loan, and even if you are eligible, it takes a longer time to receive funding.
Conventional term loans
Term loans are the most common sources of financing for the business acquisition. The process is pretty simple you get a specified amount for a specified business purpose. The repayment period is over a fixed term and at a given fixed interest rate. This source of funding is the most common because it accommodates the long term nature of the business transaction.
These kinds of loans will require that you offer security and your credit score must also be above 680. This makes the process of qualifying for these term loans very lengthy.
Friends and family loans
You could also share your business plans and ideas with your friends and family members. Ask them to give you a loan to purchase a business. It is a very convenient form of funding, and the interest rates are quite reasonable. Your credit history must be excellent for you to be trusted. The only limitation with this kind of financing is that it might create tension should the business fail, and you lose the ability to pay off the debt.
Start up loans
Qualifying for a start-up loan as a new entrepreneur may be difficult but not impossible. Startup loans are more or less the same as term loans but are only available through specific lenders who may not mind about your credit history or a proven track record.
There are business start-up loans for buying an existing business, but many banks will look into your finances and even require some down payment usually 20% of the purchase price.
There are several options that you can use to get a loan to buy a business, but they all require careful planning and analysis. Look into the financial strength of the existing business before rushing to purchase it.
Get in touch with us today and let us find out if you qualify for a business acquisition loan.