5 Effective Ways for Financing a Business Purchase
Financing a Business Purchase
5 Effective Ways
Financing a business purchase can be challenging, but there are some options to help you make this purchase. Keep reading to learn what these options are.
Financing a business purchase
In the third quarter of 2015, the median sales price for a business sold was $185,000. Most people don't have that much cash on hand.
This means financing a business purchase is the only option. But there are several ways to find finance to buy a business.
Which one you choose often depends on your current financial situation and the type of business you're looking to buy. We want to help you make the right decision on how to make a successful small business acquisition.
Keep reading as we list five effective ways to acquire financing to buy a business.
1. Financing a Business Purchase With a Bank Loan
If you want to buy a business and are thinking of making the purchase with a bank loan, make sure the existing company has substantial assets. Also, you'll need to prove you have good credit and a proven track record in the industry.
Expect that trying to obtain a bank loan to be very difficult and time-consuming.
2. SBA Loans
The Small Business Administration (SBA) also provides loans. The best option to buy a business is to apply for an SBA 7A loan.
If approved, you can get a loan of up to $5 million dollars. However, to qualify for the loan you must have the following:
Good credit
Provide three years of tax information
Provide personal finance information
Show prior experience in the industry
You must also prove you can put 20% down. However, you can also find that extra 20% through seller financing.
3. Seller Financing
Seller financing is another option. With this option, you ask the seller to provide financing in the form of a loan.
Typically this loan is amortized of a period of time and you pay the loan back using the proceeds of the business. This is an easier method to obtain than traditional financing methods such as a bank.
More Transparent
It's more flexible, can often be cheaper, and since the seller wants to be paid back, they will be more inclined to provide you with accurate financial documentation.
However, don't expect a seller to finance more than anywhere between 30% to 60% of the business unless you come armed with additional assets and can make a large down-payment.
4. A Leveraged Buyout
A leveraged buyout happens when the buyer acquires a company using a significant amount of borrowed money to buy the company. Often the assets of the company being bought are used as collateral for the loans such as:
Equipment
Real estate
Inventory
The assets of the acquiring company can also be used.
However, if things don't go as planned, it may have a largely negative impact on your rate of return. Your losses may also be maximized.
5. Get Financing Online
You have options when it comes to finding an online source to get a loan. You can choose a business loan, personal loan, and even a HELOC (home equity line of credit).
Shop around for the best interest rates. Also, not all lenders are willing to give money to buy a business.
We Help With Financing
Financing a business purchase isn't always easy because not every lender wants to deal with the risk. We're different.
We want to help entrepreneurs buy and sell their businesses with as little effort as possible. And we can help you with financing. Click here to learn how.
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