More than ever, finding the right options for financing business acquisitions is a must. With the right financing, you can feel confident the purchase you are about to make will be a smart one that provides you with lucrative returns. Some top options for financing this purchase are found here.
Use Your Own Funds
The easiest option for financing business acquisitions is to use your own money. Some funding options you must choose from include home equity, retirement accounts, or any savings. While you must use some funds for the purchase, it is unusual for someone to buy a business using only their funds for the purchase.
If this were not the case, there are few people who could acquire bigger businesses. Instead, most buyers will use the funds along with a business loan or seller financing. This is the leverage that will help them buy bigger companies.
Another method of financing a new acquisition is to ask a seller about financing options. With this situation, the seller will provide a loan that will be amortized as time passes. You will repay the loan, typically, with proceeds earned from the business. Most buyers prefer seller financing. The main reason for this is because it is much easier to acquire than more conventional financing options and it is more flexible. It also creates a seller with a vested interest in disclosing information about the performance of the business. Even better, this is often a cheaper option.
Usually, sellers will finance between 30 percent and 60 percent of the sale price that is agreed on. There are few who will finance more than that unless they are dealing with a strong buyer who has significant assets and a bigger down payment.
Acquiring a conventional loan from a commercial bank for financing the acquisition of a company can be challenging. What this means is that if you want to get a loan, you need substantial assets, a solid track record, or good personal credit. Venus Capital recommends SBA 7a with strong credit and 2 years experience for business acquisitions from $500,000 to $5,000,000
Since seller will finance 30%, rest can be done with SBA loans from us.
When it is time to finance a business acquisition, there are several financing options to choose from. It’s smart for the buyer to become familiar with these options so they can choose the one that best suits their needs. In the long run, this will help ensure a successful purchase.