What is a Business Acquisition Loan & How to Buy an Existing Business
by Fundid on May 15, 2023 8:16:15 AM
You don't have to start a new business in order to become an entrepreneur. One way you can start your entrepreneurial journey is by acquiring an existing business. This strategy can be time-saving, cost-effective, and often advantageous, but it can also require considerable financing. That’s where business acquisition loans come in. This guide will provide an essential overview of business acquisition loans, including their benefits, eligibility requirements, how they work, and more.
What is a Business Acquisition Loan?
The definition of a business acquisition loan is just as it sounds - a type of business loan designed to purchase or acquire an established business. Business acquisition loans can be either secured or unsecured, depending on the lender, but more often than not, they are secured with collateral that the borrower pledges. The collateral can be in the form of equipment, inventory, accounts receivable, or property.
Related Reading: The Complete Guide to Small Business Loans
Benefits of a Business Acquisition Loan
One of the significant benefits of business acquisition loans is that they can cover most, if not all, of the purchase price of the business. This can significantly reduce the upfront capital required to acquire the business, making it an excellent option for budding entrepreneurs. Additionally, business acquisition loans typically come with a lower interest rate than other types of debt, such as credit cards or personal loans.
1. You Can Get Financing to Cover the Entire Purchase Price
One of the main benefits of using a business acquisition loan to buy a business is that you can get financing to cover the entire purchase price. This means that you will not have to come up with any money out of your own pocket to make the purchase.
2. You May Qualify for a Lower Interest Rate
Another benefit of using a business acquisition loan to finance your purchase is that you may qualify for a lower interest rate than you would if you were financing the purchase with a personal loan. This is because business loans are typically considered to be less risky than personal loans.
3. The Loan Terms May Be More Flexible
Another benefit of using a business acquisition loan to finance the purchase of a business is that the loan terms may be more flexible than they would be with other types of loans. For example, some lenders may be willing to offer longer repayment terms or allow you to make interest-only payments during the early stages of the loan. This can give you some flexibility in how you repay the loan and can make it easier to manage your cash flow during the early days of owning the new business
Eligibility Requirements to Obtain a Business Acquisition Loan
To be eligible for a business acquisition loan, lenders typically require the borrower to have some industry experience and expertise in the area they plan to purchase. Lenders will also want to see the financial statements, tax returns of the business being acquired, and the borrower’s business plan and credit history. The loan amount and repayment terms will depend on several factors, including the borrower’s creditworthiness and the value of the collateral. In some cases, a down payment may be required in order to obtain the loan.
What are the Repayment Terms for a Business Acquisition Loan?
Another essential aspect of business acquisition loans is the repayment terms. Business acquisition loans typically last between 5-25 years, with interest rates varying. Business owners will need to provide a clear and comprehensive business plan that outlines how the acquisition will succeed. This will help to give lenders the confidence that it is an excellent investment opportunity.
Where can you get a Business Acquisition Loan?
Some traditional banks and credit unions in your area may provide business acquisition loans. In addition to local options, small business owners can secure business acquisition loans from alternative lenders, such as Lendio. These lenders are often more accessible, offering faster approval times, flexible repayment terms, and lower credit score requirements. However, it is essential to do thorough research on any lender before committing to anything, as every lender will have their own eligibility requirements.
What are the minimum requirements Lendio looks for?
Lendio offers business acquisition loans starting at $5,000 dollars up to $5 million with interest rates starting at 5.5%. The loan terms are typically 10-25 years, and you can get funding as soon as 30 days.
- 600+ personal credit score
- $8,000+ in monthly revenue
- 6+ months time in business
How do You Buy an Existing Business?
If you're looking to buy an existing business, it's important to first research and understand the process. One option is to work with a business broker who can help you find potential businesses for sale and guide you through negotiations. Another option is to search online for listings, but be cautious of scams and inflated prices.
It's also important to consider why a small business is up for sale. Common reasons include retirement, health issues, or financial struggles. By understanding the reason for the sale, you can better assess the potential risks and rewards of purchasing the business. Ultimately, buying an existing business can be a great opportunity for entrepreneurs who want to hit the ground running and skip the initial start-up phase.
Start Planning Your Business Acquisition!
Business acquisition loans are an excellent financing option for anyone looking to own a business through acquisition. Acquiring an existing business can be a great way to tap into an existing customer base, gain experienced employees, and establish a solid base of operations. However, before securing a business acquisition loan, it is essential to have a sound purchase plan in place and thoroughly research the terms and conditions of the loan.
Find Funding Through The Capital Marketplace
Explore your funding options through the Fundid Capital Marketplace. Get connected to lenders who are ready to support your small business. Whether you are looking for a business acquisition loan, working capital, or a term loan, there are funding options available to support your goals! Lendio is our preferred partner for business acquisition loans, apply today with no initial impact on your credit.