How to Finance the Purchase of a Business

finance-business-purchaseAcquiring an existing business is usually less risky than starting your own and is a quick way to enter the business world. For other entrepreneurs, buying a business represents a stable way to expand an existing business or increase market share. Either way, most buyers will need a business purchase loan to complete the transaction.

Acquisition Loans

Business acquisition loans are easier to get than start-up loans because the firm already has an established track record. The most common loan for business acquisition financing is a term loan with set monthly payments and fixed interest rate. New entrepreneurs may see a microloan as an attractive option. Microloans are usually under $50,000 and have a shorter repayment period of up to six years. One of the more popular acquisition loans is a low-interest loan from the U.S. Small Business Administration (SBA loan). A small-business equipment loan can help finance the equipment purchase; however, because it is restricted to equipment, a secondary source of financing is needed to equal the total purchase price. Each of these funding sources has different terms, requirements and interest rates; criteria and rates also vary depending on the kind of business and what assets you are purchasing.


Seller Financing

Perhaps the fastest route to buying a business is to have the seller act as the lender. The buyer pays a down payment to the seller and then makes regular payments to the seller rather than to a bank or other financial institution. Because the seller ordinarily only finances up to 70 percent of the purchase price, you may still need to take out an additional business purchase loan from another lender.

Alternative Financing Strategies

In addition to conventional business acquisition financing through seller financing and business purchase loans, buyers are turning to nontraditional sources to fund their business purchase. Crowdfunding, peer-to-peer financing and a rollover for business startups (ROBS), which accesses retirement funds from an IRA or 401(k), are other acquisition financing options, along with equity and mezzanine financing. Each strategy has advantages and disadvantages, and Links Financial has the expertise to help you decide if one of these alternatives is right for you.

Plan Ahead

Before you approach a lender for any form of business acquisition financing, do your homework. Determine the value of the company you are interested in buying, including real estate, equipment and other assets, review the company’s financial statements and create a business plan. It also is a good idea to have a financial analyst evaluate the numbers and your business plan. Be prepared to tell the lender about your management experience, transition plans and knowledge of the industry involved.

Whether you are a fledgling entrepreneur buying your first business or a seasoned veteran, Links Financial has the knowledge, connections and experience to help you find the right kind of business acquisition financing that fits your business strategy and comfort level. To learn more about your options when it comes to purchasing a business, contact Links Financial today.

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