Best Small Business Acquisition Loans For Good & Bad Credit

What is a business acquisition loan?

A business acquisition loan is a type of financing that allows you to buy a franchise, start a business, purchase a business from another owner, or expand an existing business. While there are several different ways to use a business acquisition loan, ultimately, it helps you purchase an existing business that is already established. 

How do business acquisition loans work?

You can obtain a business loan from various lending institutions like credit unions, traditional banks, SBA lenders, or online lenders. Usually, a business acquisition loan is a term loan with a set interest rate that’s repaid over a specific period of time. Entrepreneurs commonly use a few different types of business acquisition loans. 

• Term Loan: The most common form of business acquisition loan, a term loan, can provide entrepreneurs with a lump sum of cash that’s often repaid over a fixed period of time with fixed interest rates. While rates can vary, the better your credit score, the better terms you’ll likely receive. Some term loans are backed by collateral.
• SBA Loan: For borrowers looking to acquire a business, a 7(a) SBA loan is an excellent option with a capped interest rate. Because of this, they are a cost-effective way to borrow money if you qualify. Should you choose to pursue any kind of SBA loan, take the necessary steps to prepare and be patient - it’s a lengthy process.
• Startup loans: If you’re a new business owner looking to acquire another business, a 7(a) startup loan might be a good option. There are alternative startup loans, including personal loans and venture capitalists. 
• Business line of credit: If you already have an established business, you can use a business line of credit to acquire a new business or expand an existing one. A business line of credit is a revolving line of credit usually secured by an asset. 

As you apply for a business acquisition loan, the lender will likely review the valuation of the business you plan to acquire to help make an approval decision and determine what kind of down payment, if any, is required. A lot of research goes into acquiring a business and finding the right financing. Lean on mySMBscore to simplify financing a business acquisition. 

What are the pros and cons of a business acquisition loan?

A business acquisition loan is a great solution for borrowers hoping to purchase or buy out a business. However, there are some important pros and cons to understand. 

Pros: 

• You can build business credit - As with any loan, you can grow your business credit with on-time payments 
• They minimize the amount of capital needed - Since you’ll be financing part of the business acquisition, you need less cash and money to complete the purchase. This is helpful for businesses with minimal funding or revenue who still want to acquire or expand their business.  
• Flexible uses - With a wide variety of lenders and loan products, you can use a business acquisition loan to fit your needs in several ways.

Cons: 

• Strict qualifications - Most business acquisition loans have higher minimum credit scores and require a down payment to qualify, making them difficult for some borrowers to obtain. 
• Interest rates can make it expensive to borrow - Depending on the lender and your personal and business credit score, interest rates can add to your expenses and make it expensive.  

Where can I get a business acquisition loan?

Business acquisition loans are a popular loan product and are readily available from several lenders. This includes traditional banks, SBA loans, online lenders, and credit unions. 

If you’re looking for a business acquisition loan, use mySMBscore. Our platform allows business owners to shop for loan offers without credit impact. Plus, business owners can evaluate their SMBscore through the eyes of a lender. With access to valuable insights, business owners can take steps to better position themself for a business loan. The result? Better loans with lower costs. 

Can an SBA loan be used for business acquisition?

Yes! An SBA loan is a common way to obtain a business acquisition loan. SBA business acquisition loans have competitive interest rates and allow you to borrow up to $5 million over 25 years. With capped interest rates, the offered rates with an SBA business acquisition loan are often much lower than the rates online or lower than what traditional lenders can offer. 

While an SBA loan is a popular choice, there are a few things to be aware of when applying. SBA 7(a) loans do have prepayment fees if you choose to pay your loan off quicker than the terms set. Additionally, a 10% down payment requirement usually adds to the borrowing costs. If you need the funds quickly, an SBA loan is not the best option, as these loans can take up to 30 days to fund. 

Can I get a business acquisition loan with bad credit?

While the minimum credit score will vary by lender, most lenders require at least a good personal credit score to apply and qualify for a business acquisition loan. While some lenders might be willing to work with subprime credit scores, they will likely charge higher interest rates, making it harder and more expensive to obtain. 

How much money can I borrow to buy a business?

The amount you can borrow will depend on the loan type, your chosen lender, and what you qualify for. While some online lenders will allow businesses to borrow up to $500,000, an SBA 7(a) loan has higher borrowing amounts of up to $5 million. 

Each lender can review your qualifications to confirm what you’re eligible for and how much they feel comfortable loaning. To create more opportunities, you may need to put up collateral. 

Can I get a business acquisition loan with no money down?

While it’s uncommon, some business acquisition loans don’t require a down payment. For example, an equipment loan usually will have no down payment requirements since the equipment is the collateral if you fail to repay the loan. 

You can expect to pay a down payment if you opt for a more traditional loan option like a term loan or SBA 7(a) loan. This can range from 10% up to 30% depending on your individual qualifications and loan terms. 

Is it hard to get a business acquisition loan?

Obtaining a business acquisition loan can be harder than a personal loan or other types of financing since you’re hoping to purchase another company. With many variables in the mix, the importance of being a strong candidate increases. Good credit, a sizable down payment, and a clear-cut way to repay the loan can be helpful when lenders review your application for approval. Banks want to see you’re fiscally responsible and will likely closely review all financial information like tax returns and bank statements before approving your loan application. 

If you have a strong credit score and a proven track record of business, it shouldn’t be hard to obtain a business acquisition loan. If you want to start exploring your options, you can use mySMBscore to see customized loan offers designed just for you, saving you time and money as you shop for the best loan.

How do I qualify for a business acquisition loan?

There are several factors that a lender can consider when reviewing your business acquisition loan application.  

• Your personal credit: Most institutions require good credit of at least 650 to approve a business acquisition loan. This illustrates to the lender that you are financially responsible with your own money and can handle additional debt. 
• Letter of intent from business: A letter of intent confirms your approval and permission to acquire the business. This is necessary for the bank to understand what you’re purchasing and that you have a legitimate business need for the money.
• Financial statements from your business: To confirm the business is earning a steady income and in good financial shape, the lender can request documents that confirm your business's financial position, like balance sheets, profit and loss statements, and cash flow statements. 
• Personal and corporate tax returns: Corporate and personal tax returns can show the history of your finances and outline any trends or concerns from a lender’s perspective. 
• Down payment: Most loan types require a down payment to show you’re committed to the business and financially able to contribute. Depending on the loan, this amount can vary but range from 10-30%. 

Outside of these factors, lenders want to know if you are purchasing a business that is accurately valued based on its industry, the net worth of the assets, and the amount of cash it generates. As a well-qualified business owner, you should have the answer to anything they may ask. However, even if you know the answers - be sure you can back them up with proof. 

What are the usual terms of a business acquisition loan?

If you pursue traditional financing through a bank, credit union, or online lenders, there should be nothing unusual about the loan. However, when you turn to alternative funding methods such as angel investors, venture capitalists, etc., terms can become a bit unusual. As with any business transaction - read the fine print and understand the terms before signing the dotted line. 

When you are familiar with what you should qualify for, you can confidently negotiate terms. At mySMBscore, business owners can check their SMBscore and unlock key financial drivers lenders use, all with no credit impact. Our user-friendly platform allows business owners to monitor credit activity while identifying ways to improve credit scores and gauge the likelihood of qualifying for a line of credit. Through the mySMBscore platform, you can unlock offers for a business line of credit, business term loan, and more. The SMBscore was developed to create an industry-specific, tailor-made risk assessment that can be used to determine the financial stability of small and medium-sized businesses (SMBs). Our score represents the risk of a company having financial difficulties in the next three years, thus empowering lenders and business owners. With access to key lending metrics, you can use the knowledge to unlock the best loan offers for your business. 

Start your business acquisition on the right foot. . .check your SMBscore now!