May 21, 2024

5 Approaches To Get Loans for Buying Pre-Existing Businesses


Individuals Who Usually Need Funding For Their Businesses

In America this is the land of the free market and capitalism because of this you have entrepreneurs that are created on a daily basis. You have people who start a business from scratch and need funding to keep their business afloat. Then you have a business-minded individual who chooses to buy an existing business and if they do not have the funding to acquire the business they may have to apply for funding in order to purchase the business.

Then there is a third type of scenario and this is when a current business owner wants to grow their company. Instead of creating a new product or service the business owners decide to purchase an existing business in order to grow his current business. If the business owner can not cash flow the purchase of the existing business the owner will have to take out a loan to buy a business that is already in existence.

In either one of these three seniors, the individuals will need the proper information to help them learn or walk them through the steps to get the funding needed for their business or to purchase a business.

What Is A Business Acquisition Loan

When an individual or a business if looking to purchase an existing business this type of purchase can be very expensive. The name of the actual loan is called a business acquisition loan or a commercial loan. This type of loan is specifically used for purchasing an existing business or a franchise. The financing will depend on the business that is being purchased and the interest rate will depend on the individual’s personal qualifications.

In the United States, business acquisitions are actually a very common thing according to a report by the Institute of Mergers, Acquisitions, and Alliances. In 2018 alone there were about 15,000 business acquisitions. There are many types of business loans out there but there are certainly small business loans that fit better for the acquisition of a business. There are five types of financing options that are usually considered for these business acquisitions they are traditional loans, small business administration loans, seller financing, rollover for business startups, and the use of alternative loans.

Traditional Loans

If you are the type of individual who is looking for a business acquisition loan that has the same monthly payments and a fixed interest rate your first option may be to try for a traditional loan. The language of this loan is probably the easiest to understand. The terms for these loans are very simple as well you borrow for the business acquisition and you pay the loan back on fixed terms and usually at a fixed interest rate.

Small Business Administration Loans

The small business administration loan is the most popular way to get a loan to purchase an existing business. The only catch to getting one of these loans is that the borrowers personal and business credit have to be almost perfect. The good thing about these loans is that you get the best interest rates and repayment terms. The bad thing is that these loans can take up to a year or more to process.

Seller Financing and Roller Over For Business Startups

This type of financing is when the business owner has some type of a report or trust with the buyer and agrees to transfer ownership of the business without receiving the full price for the business. Then a promissory note is signed for the balance remaining for the business and the new owner agrees to pay the old owner the remaining cash balance in a set time frame.

The ROBS may be the way to try and purchase an existing business because if the paperwork is not filed correctly it can land both parties into serious trouble with the IRS. The way the ROBS is done is that it lets individual use funds in a retirement account to purchase an existing business.

Alternative Loans

There are also alternative lenders available and these alternative lenders are mostly used to combine with other loans or can be used while an individual is waiting to be approved for a small business administration loan. The types of alternative loans available are working capital loan, business line of credit, and equipment financing loan.

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