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