If you’ve got a great business idea but don’t have the money to start it, then you’re in luck. There are several ways to finance your acquisition, from SBA loans and co-investment financing to personal money and seller financing. You’ll have to decide which option suits you depending on your needs and situation. Take a look at these points to understand your options better.
The Small Business Administration (SBA) offers loans specifically designed for small businesses. These are 7(a) loans, and the United States government offers them. SBA loans can be used in various ways, but their primary purpose is to help small businesses get back on their feet when money is tight.
SBA loans are meant for businesses that don’t have access to traditional bank financing because of their size or credit history. So, for example, if you have a strong credit score, but your business has yet to prove its worth in the marketplace by producing substantial sales numbers or revenues, an SBA loan could be just what you need!
The most common way to get a business acquisition loan is with personal money. However, this strategy can be challenging because raising large amounts of personal money is difficult. Additionally, if you don’t have enough cash on hand and need to borrow from your bank or another lender, it may be hard to convince them that you have a good chance of making the loan back through your company’s revenue.
Seller financing is a type of loan used to finance an asset’s purchase. This financing usually involves the seller extending credit to you on a short-term basis, often at below-market interest rates with no points or fees. At first glance, this seems like it would be a pretty sweet deal for both parties involved—the seller gets their cash quickly and doesn’t have to wait for the sale completion before receiving funds. In contrast, you get some extra cash upfront to make your down payment or close on your new business acquisition property.
Another way to finance a business acquisition is to partner with another company. For example, the partner could be an existing firm or a new one you create together.
In this case, the partnership allows you to split up the responsibilities of running your companies, so they work more efficiently: Your business will handle daily operations while their firm manages employees and finances. This helps keep costs low because neither side has to pay for all aspects of running a business independently (or hire expensive outside consultants).
Leveraged buyout (LBO) financing involves using debt and equity to purchase a business. The transaction can be structured as either an asset sale or stock purchase. LBOs are often complex, involving multiple parties and multiple layers of financing.
Though these transactions are typically structured as leveraged buyouts with two primary components—debt (bonds) and equity (stock)—they may also involve other types of financing, such as mezzanine debt.
“An acquisition loan can be used to obtain a standalone business, to purchase a franchise, or to buy out partners in your current business. While requirements vary by lender and situation, new entrepreneurs and existing business owners can usually find options to apply for,” Lantern by SoFi experts explains.
One of the best things to do when you’re looking at a business acquisition loan is to have as many options available to you as possible. Thoroughly researching your financing options will make it easier for you to find one that fits your needs and goals perfectly.