What if you could just buy your competitor? Or, if you are looking to break into the business world, wouldn’t it be nice if you didn’t have to start from scratch? Both of these scenarios are made possible through business acquisition financing. To get you started down this path, here are four useful ideas for funding your new venture.
Develop a Plan
Do your homework before you approach any lender for business acquisition financing. Determine the value of the equipment, real estate, and other assets of the enterprise you are interested in purchasing. Create a business plan and review the financial statements of the organization. You should also run your business plan and your numbers by a financial analyst. Be ready to tell potential lenders about your transition plans, knowledge of the industry, and management experience.
See if the Seller Will Finance the Transaction
When the seller acts as the lender, the business acquisition process tends to move much more quickly. Rather than going through a bank, credit union, or other financial institutions, you work directly with the seller. First, you make a down payment. Then, you are expected to make regular payments to the seller at an agreed upon rate. If you are particularly low on funds, you may still need to take out an extra loan from another lender for the down payment since the seller typically only finances 70% of the purchase price at most.
If you already operate a business with a strong track record, it will be much easier for you to get a business acquisition loan than it is to get a start-up loan. Term loans with fixed interest rates and regular monthly payments are the most common loan in business acquisition financing. Another attractive option for new entrepreneurs is a microloan, which is usually for under £25,000 with a short repayment period. If you need funding for equipment, you could look into a small-business equipment loan.
Alternatives for Financing Your Business Acquisition
Many buyers are funding their business purchase using nontraditional sources in addition to conventional business acquisition financing through business purchase loans and seller financing. Along with equity and mezzanine financing, alternative financing options include peer-to-peer financing, a rollover for business startups, and crowdfunding. All of these sources have different requirements, interest rates, and terms. Plus, rates and criteria vary based on what assets and type of business you are buying.