How to Finance a Business Acquisition

Financing a Business Acquisition

Learn about ways to finance a business acquisition

Are you considering different ways to finance a business acquisition? Read through to learn more about how to finance a business purchase.

Finance a Business Acquisition

Are you an entrepreneur? Are you considering a business acquisition loan?

Unlike a startup venture, you won't be starting a business from scratch. In fact, the business acquisition allows you to enter into new markets with a brand that is already established. It will give you access to resources, competencies, and experts that you do not currently have, but that will prove invaluable to business growth in the future.

One issue that acquisition presents, however, is financing. 

Where do you get the funds to finance a business purchase, and do you qualify for this capital?

Let's take a look.

1. Borrow From Yourself

The best way to avoid putting your business or property at risk if it fails is to use your own funds to purchase it. Few entrepreneurs, however, acquire businesses using only their own funds. 

Your savings are a great way to start. If, however, you do not have the funds, you can take out a loan from your 401K.

The IRS will allow you to take out a loan of up to 50% of your 401K. The loan must get repaid with interest within five years. If you don't pay back the loan, it will be considered defaulted and you will have to pay taxes on it. 

2. SBA Loan

A Small Business Administration Loan is a popular way to finance a business purchase. While the Administration itself doesn't finance the purchase, it provides guarantees and safety measures for the lenders who will fund your acquisition.

You will need good credit to qualify for an SBA loan. And you should expect to put around 20% down. 

If you qualify, however, SBA loans have definite advantages. These include low interest rates and long repayment terms. 

3. Seller Financing

Sometimes, the seller of the business can lend you money that you can pay back over time. The advantage of this for buyers is that you can get quicker access to financing, as well as lower financing costs. Sellers hope that it will attract more buyers and help them make more money.

How to Finance a Business Acquisition

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4. Bank Loans

A traditional bank loan can be difficult to secure for a business purchase. You may, however, be able to secure excellent rates if you have the right credentials.

Banks will look closely at your financial history. They will also look carefully into the financial history of the business you wish to purchase. You will need substantial assets, an excellent credit history, and a good track record in your industry.

5. Peer-to-Peer Loans

Peer-to-peer, or P2P, business lending allows investors to lend to business owners in an online marketplace, or from their personal networks. In order for them to take a chance on you, however, it helps to have solid experience in your industry.

Financing A Business Acquisition

A business acquisition is a tremendously exciting adventure. With the right financing, you could be running a successful enterprise in no time.

For more information on business purchases, read more of our blog today. 

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