Business Acquisition Loans: Overview and Main Options

Business acquisition loans are specifically designed to fund the acquisition of an existing business or franchise. Small Business Loans They are available from banks, credit unions and online lenders.

The best business acquisition loan is the most affordable option available to meet your needs.

Business acquisition loans are used to acquire a business, whether that be buying an existing business, becoming a franchise owner, buying out a business partner, or buying the business assets of another company. How the funds from a business acquisition loan are used is determined by the lender.

Banks, credit unions, online lenders, and local lenders may offer business acquisition loans, including Small Business Administration loans. For example, SBA 7(a) Loans for Business Acquisitions Or you can increase your ownership share in an existing business.

A business acquisition loan is typically structured as follows: Long-term loansborrowed funds are repaid with interest within a certain period of time. Business Lines of Credit The same applies when acquiring a business.

Loan amounts, interest rates and repayment terms vary by lender.

Business acquisition loans can be obtained from a variety of sources, including:

Banks and credit unions can offer low-interest, long-term business acquisition loans. These loans are a good option for well-qualified borrowers who don't need cash right away.

How to Qualify Business Bank LoansTypically, you will need good personal credit, several years of business experience, and a good financial standing. Not all banks and credit unions require this. Physical CollateralHowever, by providing this type of collateral, you may be able to access larger loan amounts and lower interest rates.

However, business acquisition loans from banks and credit unions take longer to fund and often require a lengthy application process.

SBA loans are issued by participating financial institutions (usually banks and credit unions) and are partially guaranteed by the Small Business Administration. These loans have flexible terms and low interest rates and can be used for many types of business acquisitions. However, like traditional bank loans, SBA Loans There are strict requirements and it can take time to secure funding.

To qualify for an SBA loan, you typically need high annual revenue, at least two years of business history, and a personal credit score of at least 690. However, some SBA lenders may have lower credit score requirements.

Also, At least 10% down payment If you use an SBA loan to buy a business, 10% of the total loan amount will be included in the loan amount, and in some cases, you may be required to provide additional collateral.

standard SBA 7(a) Loans Funding can take anywhere from 30 days to several months. Alternatively, SBA Express Loan The time to fund is shorter, but the loan amount is smaller and the interest rate is slightly higher.

If you need funds faster or don't qualify for an SBA or bank loan, consider a business acquisition loan from an online lending company. Online lending companies, such as Funding Circle, offer acquisition loans in amounts up to $500,000 and terms up to seven years.

Online lenders generally have less stringent requirements than banks or credit unions. If you have fair credit (FICO score between 630 and 689), you may be able to qualify for a business loan, and you may not need to provide physical collateral. Online lenders are especially likely to work with startups that have strong financial positions.

Additionally, bank and SBA loans can take weeks to fund, Online Business Loans Funds can often be obtained within a few days. As a trade-off for the ease and speed of approval, online lenders often charge a higher annual percentage rate (APR) than traditional lenders.

✅ It helps cover the initial costs. Instead of relying on existing capital reserves or personal savings, a business acquisition loan can help cover some of the costs associated with buying another company.

✅ There may be flexible collateral requirements. For example, SBA 7(a) loans under $50,000 do not require collateral.

✅ Quick financing is also an option. Online lenders can provide you with access to funds within a few days.

❌ It may be difficult to qualify. Because you’re looking for a loan to buy another company, lenders want to see good credit and financial standing to show you’re trustworthy, experienced, and capable of paying back the debt.

❌ This could impact your cash flow. While a loan can help cover the cost of a purchase, it requires regular repayments, including interest, which can impact your cash flow and monthly budget, especially if the interest rate is high.

❌ A down payment may be required. Depending on the lender and your qualifications, you may be required to make a down payment between 10% and 30% of the loan amount.

To get a business acquisition loan, follow these steps:

Lenders usually Business Evaluation Many factors must be taken into account when determining the loan amount, including an assessment of the economic value of the company you are buying, which is why you should undergo a formal valuation before starting the application process.

These valuations are often conducted by an independent third party and use factors such as the business assets, future revenues and current market value to fairly assess the value of the business.

A signed letter of intent will set forth the terms of the business sale, including the purchase price, the assets included in the sale, and the liabilities that will be assumed by the new owner. Like a business valuation, lenders will often require a letter of intent to be submitted as part of a loan application.

If you are not comfortable making an offer before getting the loan, you can include a clause in your letter stating that your offer is contingent on receiving the loan.

In addition to the financial strength of the business you’re buying, lenders will review your application based on factors such as:

• Personal credit score. The higher your credit score, the more likely you are to get a loan with the most competitive interest rates and terms.

• revenue. A strong existing financial position helps demonstrate to the borrower that you have the ability to repay the loan.

• Time spent on business. Business history is a measure of success and security to lenders. If you have a multi-year business history, lenders are more likely to believe that you have the experience to manage the company you are acquiring and therefore will be able to repay the funds you borrow.

• down payment. All lenders down paymentBy offering it, you will be able to access better rates and terms.

• collateral. You may be able to secure financing using your existing business assets, or the assets of the company you are acquiring. Physical collateral reduces the lender's risk by allowing them to seize your assets if you are unable to repay.

To find the best option for your needs, you'll need to research and compare multiple lenders. You'll need to compare factors like: Business Loan Interest Ratesfees, repayment terms, application process, customer support, and more.

To get a better idea of ​​a lender's reputation, it may be helpful to read lender reviews. Look for lenders with good reviews who are fairly transparent about interest rates, fees, and terms.

Once you've decided on a lender, you'll need to submit certain documents based on their requirements. The speed at which you gather this information can affect the overall timing of your application process.

• Franchise agreement (if applicable).

• Corporate financial statements.

Keep in mind that lenders will likely require financial documents from you (bank statements, tax returns, financial statements) in addition to those of the business you’re buying.

Depending on the type of lender, you can apply online, over the phone, or in person. If approved, Business Loan AgreementReview this agreement carefully to be sure you understand the repayment terms, interest rates, and fees.

After you sign the contract, the lender will disburse the funds to you. Depending on the specific process, the lender may transfer the funds directly to the seller or send it to you in a lump sum.

If you're considering buying a business, there may be financing options outside of a traditional long-term loan. Here are some options to consider: