Spend Money to Make It: Financing Options for Buying a Business
Want To Buy A Business?
Financing Options For Buying A Business
If you've found the business you want to purchase, but aren't sure how to pay for it then this guide is for you. Keep reading to get the money you need.
Financing options for buying a business:
It doesn't matter if you're a solopreneur or a budding business owner who will employ hundreds. Starting a business requires capital.
On average in the United States, it costs a whopping $30,000 to start a small business from scratch. That's averaging out the big guys with the little guys. You can imagine how much some entrepreneurs might be risking on their startups.
If you're unsure how much it will cost to start your business, you can check the estimated cost of your startup with Entrepreneur.com's calculator tool. There's more to consider than you might think.
Once you know how much you need, how are you going to get the money? Like dad says, "money doesn't grow on trees." Let's explore some financing options for buying a business and get you on your way to success.
Angel Investors
If you can snag an angel investor, you're in great hands. These guys know the risk of a budding startup and are willing to take it. They typically own more than $1M in assets which affords wriggle room for more risky investments.
The biggest downside to an angel investor is their need for even more detailed plans. You need to convince them of your credibility. Just because they are willing to take risks doesn't mean they're wanting to throw their money in a hole.
Do your research. Gather competition analysis, create detailed sales and marketing plans. Essentially, show your expertise in your market.
Your idea needs longevity. If you're just sniffing out a trend but don't know how your product or service will fare in the long run, you won't attract an angel investor.
Lastly, be passionate. If you truly believe in your vision, that's infectious. If you've done your research and your idea has a long half-life, go all-in. Your ardent enthusiasm will help lubricate their pockets.
Micro-lending
If you've ruined your credit on previous passion projects, you may not be able to get a traditional loan. If you really think your business will take off, you might try a microloan.
Micro-lenders are another group of risk-takers. But the return on their risk is higher. They charge a higher interest than a typical loan.
How much higher? You could see APR as high as 30% in some cases, although that's rare. No need for collateral either which balances out the high interest rates.
One such example of micro-lending is peer-to-peer lending. Cutting out the gatekeepers gives more people access to small business funds than traditional means provide.
A few examples of P2P lending companies:
Upstart: a group of ex-Googlers started a platform that judges borrowers not on FICO score but on education, academic performance, and work history.
Funding Circle: After the founder's loan was rejected for the 96th time, they created Funding Circle for U.S. and U.K. small business owners.
Prosper Marketplace, Inc.: This is the original U.S. P2P marketplace. It now serves over 800,000 people.
A Few Other Financing Options for Buying a Business
There are a few more financing options for buying a business outside of traditional loans from either the government or the bank. Self-funding is one of them. Tap into your 401ks, use a credit card if you have a large credit reserve, or start a crowdfunding campaign (that last needs a previously existing fan base or really great marketing).
If you're ready to get financed, let us know. We'll show you how it's done.
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