Buying a business is a tremendous opportunity that can grow an existing business or start a new one. From acquisition or startup costs to marketing and legal expenses, buying a business involves a lot of moving parts. To successfully acquire the business, you will need to maintain healthy cash flow to invest in growth. Therefore, a business loan is often needed to fund the purchase or growth of a business. With access to the internet, business owners now have more options which means more opportunity. While you may opt to use a traditional bank or credit union, don’t discount what online lenders are capable of. Plus, the convenience they offer is unparalleled. At mySMBscore, business owners can check their business credit score, gain actionable insights about how to improve their financial standing, and connect with legitimate lenders they are most likely to qualify for.
Obtaining a business loan with bad credit can be challenging. Since lenders can consider a personal and business credit score, this can further complicate things. To increase your chance of qualifying, consider improving your credit scores before applying. At mySMBscore, we can help you understand what you need to improve and how you can improve your business credit score. Credit scores can be lowered due to holding too much debt. Businesses often have debt, but you will likely need to demonstrate it’s not holding the business down. A business still needs to have healthy cash flow. Finding the right lender is key when trying to qualify for a business loan. Here are some of our lending partners that have less strict requirements.
Interest and fees can add up quickly. When borrowing money, you will pay more than just the “loan amount.” It will be important to understand the loan costs, even if they are something you’d rather ignore. Maintaining accurate financials as a business owner is key. Be sure you compare offers thoroughly to understand the total loan cost. Focusing on repayments or total loan amounts can lead to mistakes and mismanagement of finances. At mySMBscore, you can compare offers with no credit impact. Here are some of our lending partners and their starting interest rates.
There are some circumstances that allow business owners to use a SBA loan to buy a business. Generally, the business owner will need to already have an established business that obtains the SBA loan. From there, the business can acquire or purchase another business to grow the existing one.
The SBA (Small Business Administration) is a cabinet-level agency committed to helping small businesses. While the administration themself does not extend loans, there are SBA approved lenders that do. SBA loans are partially backed by the government, which incentives lenders to approve the loan. The SBA puts forth requirements for SBA loans. Additionally, they can monitor rates, loan amounts, and other terms. SBA loans are known for being more affordable and flexible, and in some cases easier to qualify for. However, the application process can be time consuming.
To apply for an SBA business loan, you’ll need to connect with an SBA approved lender. The SBA has a variety of loan products so you’ll need to know which one you are pursuing. With a completed application and stipulations submitted, the lender can work to approve the loan.
SBA loans come with plenty of requirements, which can vary depending on the type of loan you’re applying for. Requirements generally include the following:
When using an acquisition loan, you may need to show proof of purchase or intent. It will depend on the type of SBA loan you choose.
The approval process for an SBA loan can be strict. Therefore, as you go through the application process, make sure you submit accurate information that you can prove. Documentation that’s often requested can include:
SBA loans are available up to $5 million dollars, depending on the type of SBA loan you apply for. The offers you receive will vary depending on what you qualify for.
SBA loans are known for offering competitive interest rates, a big reason companies undergo the complicated process of obtaining one. Interest rates vary depending on the amount you apply for as well as what you qualify for. The repayment period can also impact the rate. Rates for SBA loans generally range from 10.50% to 16.25%.
There are some industries that the SBA will not work with such as multi-sales distribution, gambling, and investment or lending are all examples of industries that don’t qualify.
Getting approved for an SBA loan usually takes between 30-90 days. If you need funds fast, you may want to pursue another option. To expedite the process, provide any requested documentation quickly and submit accurate information during the application process.
Repayment periods can vary depending on the loan, amount, and what you qualify for. For example, SBA loans for equipment can come with terms up to 10 years. While SBA loans for real estate can come with terms up to 25 years. Determine what type of SBA loan you need to buy a business and then check with the lender to see what terms might be available.
SBA loans can be used to buy a franchise business. However, you’ll likely need an already established business to qualify.
While you can review requirements with the SBA or an SBA approved lender, the only way to truly know if you qualify is to apply. Before applying, take advantage of the mySMBscore platform to view your business through the eyes of a lender. Together, we can work to increase your chance of approval while helping you obtain more competitive offers.
SBA loans can require a down payment, depending on the loan amount.
Defaulting on an SBA loan comes with consequences just as any other loan. If collateral is backing the loan, the lender can seize the collateral. Personal assets can also be pursued in effort of recouping funds. The SBA partially backs loans, which can reduce the risk and responsibility for the business owner. Nevertheless, if you are struggling to repay a loan you should always communicate with the lender to try to find a solution or understand what the consequences will be ahead of time.
Getting an SBA loan can be difficult. With high demand for these loans, and great incentive, business owners will need to be patient. If you can qualify for an SBA loan to buy a business you can enjoy potentially lower interest rates. While requirements can be less strict than other types of loans, more documentation may be required. We encourage business owners to at least try to qualify for an SBA loan if possible. To increase your chance of qualifying, check your SMB score and leverage actionable insights to improve the financial position of your business.
SBA 7(a) loans under $25,000 do not require collateral, therefore they are unsecured. However SBA 7(a) loans in excess of $350,000 require collateral. To obtain an SBA 7(a) loan you’ll need to work with an SBA approved lender to get prequalified. The lender can define what is and is not required to secure the loan.
Getting an SBA loan to buy a business requires quite a few steps and careful planning. Here are a few steps to get you started:
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