Nothing gets your blood pumping more than acquiring something big. We’re not talking about a new pair of shoes or even a house. A business acquisition can bring both excitement and fear into a person’s heart.
You cannot purchase a business, typically, with the cash that you have lying around the house. You need a business acquisition loan.
If you’re interested in buying a business that’s already up and running, keep reading to learn all you need to know about a business acquisition loan.
What are Business Acquisition Loans?
A business acquisition loan is just what it sounds like: a loan to acquire a business. With this particular type of loan, you’re purchasing a business that already exists. You are not starting a business from scratch.
A Good Time for Buying a Business
As you look at buying a business, you need to make sure this is a good time for you to buy a business. You should analyze your own financial situation, and then also understand how to raise debt and equity at the same time. Just because you have some debt already does not mean you’re automatically out of the business acquisition game.
Acquiring an already successful business will help you avoid regular start-up anxiety and stress. If you see business is already working and believe you can make it better, a business acquisition loan will help you make this move successfully. You can even acquire 100% business acquisition loans with the right lender.
Types of Business Loans
Not all business loans are alike. Here are three different types of business loans that will help you acquire the business of your dreams.
1. SBA Loan
The SBA is the United States Small Business Administration, an independent agency of the federal government. They aid, counsel, assist and protect small businesses. They exist to help strengthen the United States’ economy by preserving free competitive enterprise.
They exist to help small businesses start and thrive. They even helped turn three small businesses into giant corporations.
An SBA loan, thus, is a loan that the US SBA backs. The SBA will back up to 85 percent of what the bank will lend you, and this means less risk for the bank. It also means the bank can offer a lower interest rate and longer repayment terms.
An SBA loan is one of the highest quality loans out there. It comes with a lengthy application process and thus takes quite a bit of time for acceptance and processing. If you go this route, you will need patience, but the end result will pay off.
2. Traditional Bank Loan
If you go down to your local bank and ask about a business acquisition loan, you will have to jump through more hoops than with an online lender. They will carefully examine your credentials as well as the financial records of the business you want to acquire. They will want to make sure they’re taking a good risk.
3. Equipment Financing
Sometimes you need to finance the equipment you need more than you need to finance the business itself. You can acquire an equipment loan from a local bank as well. Best of all, you do not need to provide collateral for equipment financing since the equipment itself is your collateral.
How to Get Approval for a Business Acquisition Loan
Anytime you borrow money, you’re asking someone to take a chance on you. You need to prove that you will be a good risk to take. This means you need to prove that you can repay that lender and that you’ll take good care of the money that they lend you.
Rarely does your lender actually know you, so you will need more than just your good character as evidence that you’re a good risk. The lender will look at credit history, your record as a business person, and the revenue of the business you want to purchase.
With a business acquisition loan, the lender is looking at both you as a borrower as well as the viability of the business itself. The lender will want to make sure the business is actually making money and that you can run it well.
Start gathering the necessary records as you look into business acquisition lenders. You will need records of the business’s financial value and success. You will also need your own business plan and financial projections for the business.
You need to have your own business record in writing as well, proving that you understand how to run a business. Your personal success matters just as much as the success of the business before you take ownership.
Here is a list of some of the things you will need:
- The Debt Schedule of the Business: you will need a list of all the debts and liabilities the business already has.
- Financial Statements: you should hat at least three years of financial statements from the business you want to buy. These statements should include profit and loss statements, balance sheets, and cash flow statements.
- Tax Returns: You need three years’ worth of personal and corporate tax returns for you and the business.
- Personal Financial Statement: You need to have form 413 ready for your lender to reveal all of the relevant financial information about you. If you have a partner, then your partner needs to have form 413 ready as well. A person qualifies as a partner if he or she has more than 20 percent equity in the business.
- Personal Information: your lender will want information about the borrower (you). The lender will want information about past government financing and any key individuals in the business.
- Personal Credit Statements: You need to have good credit for the bank to see you as a good risk. In particular, you need to have a credit score of anywhere from 650 to 690.
- Signed Letter of Intent: This gets a little tricky because you’re saying you intend to buy something before the loan goes through. Make sure this letter of intent has a clause that says the offer depends on you getting the necessary financing for the purchase. The clause should also give the buyer a reasonable time to find financing.
Apply, Acquire, and Live the Dream
Many people dream of owning their own business but just do not know how to make it happen. A business acquisition loan can easily turn a dream into reality. If you apply with the right documents and requirements in mind, you can acquire your business and start living your dream.
