Money to Acquire the Business of Your Dreams
A business acquisition financing is a loan used to buy an existing business. If you find an available business that is already successful but the current owner wants to exit, a business acquisition loan will help you make this move successfully. It could also be used to open a new franchise or begin a new startup business.
There's no one type of business acquisition loan but there are a few small business loan products that work best for the business acquisition process. While some lenders may try to interest you in a short-term loan or a business line of credit, here are some of the best loan types to consider:
A term loan is for a specific amount with a fixed interest rate and term and a specified repayment schedule. The benefit of this loan is that you have predictable monthly payments, enabling you to manage your cash flow.
Term loans are commonly used as they fit with the long-term nature of purchasing an existing business. However, many lenders have high standards for this type of loan, including a sizable down payment, so you might not qualify on your first try. So get ready for one or several lengthy applications to get this type of acquisition loan.
SBA 7(a) Loans:
The term SBA Loan suggests that the SBA directly lends money to businesses, but they don’t. Instead, the SBA as a government agency guarantees all or part of these loans, which provides an incentive to lenders to approve more borrowers. So the SBA lessens the risk that a lender has to take, and increases the chance that a business will get approved for a business acquisition loan.
The 7(a) loan program allows small businesses to borrow up to $5 million for business acquisitions, partner buyouts, working capital, equipment purchases, or the purchase/refinance of commercial real estate (as long as 51% or more owner occupied).
Down payments for SBA 7(a) loans are much lower than conventional bank loans, with down payments of 5-10% for business acquisitions, and as low as 0% for commercial real estate.
SBA 7(a) loans are fully amortizing loans, with a 10 year term for business acquisitions and a 25 year term for commercial real estate. Conventional bank loans often have 5 to 10 year balloon payment terms and then need to be refinanced.
If you are a first time business owner or relatively new entrepreneur, you should look at a startup loan. These are typically term loans, but are available through specific lenders who won't expect revenue or credit history from an existing business when they evaluate your finances as the borrower. While startup loans do exist, they are difficult to come by and involve intense scrutiny into your personal finances. Also, the lender will expect you to put in at least 20% of the purchase price as a down payment.
Call us today for more information on our acquisition financing options. We'll help you get your deal done.