How to Finance a Business Purchase
How to Finance a Business Purchase?
Every year, thousands of people buy businesses. These transactions cover a range of different industries, but all have one thing in common. They all needed capital to finance the business purchase.
This short guide will outline several common ways you can finance your business purchase. No matter if you want to purchase a small, medium or a large business, the following options are all viable routes to consider.
1 – Use Your Own Money
One of the simplest ways to finance your business purchase is to use your own capital. This could come from your home equity, or from your retirement or savings accounts. If you can support the entire transaction out of your own pocket, that’s great, but most will require additional financing to make up the difference.
If prospective buyers used only their money, very few people would be able to buy larger and more expensive businesses. Instead, the majority of buyers use their own funds, augmented by either a business loan or vendor financing. This combination gives the buyer additional leverage that lets them purchase larger companies.
2 – Vendor Financing
Sometimes, the vendor will agree to provide the funding that enables you to buy their business. The vendor will give you a loan that will amortize over time. You’ll use proceeds from your newly acquired business to pay the loan back to the vendor. Vendor financing is very popular with people who want to buy a business because it’s flexible and easier to obtain than conventional financing.
Additionally, the vendor has a vested interest in making sure all the performance information for the business is accurate at the time of sale because it dictates how quickly you’ll be able to pay them back. This type of financing is a risk to the vendor, so be prepared to pay a higher interest rate, show them your business plan, assets, and credit, as well as demonstrating your experience.
3 – Business Loans
A Business Loan is one of the best options available to help finance your business purchase. This type of loan doesn’t lend capital. Instead, this loan gives the bank you want to use safety measures and a guarantee that allows them to lend the capital needed for the purchase. There are minimum qualification guidelines you must follow with a business loan, and banks can add to these qualification guidelines.
As a general rule, purchasers using this financing route can get up to 80% funding to cover most of the business purchase costs. To qualify for this loan, you must:
- Provide tax information for the past three years
- Disclose personal financial information
- Have a decent credit score
- Have a minimum of 20% of the purchase cost as a deposit
- Prove you have experience in your potential businesses niche
Business Loans traditionally can be challenging for some purchasers to obtain because it can represent a high risk to the bank. However, some banks will approve a loan for the purchase of a business, especially if it’s a smaller enterprise.
The key to getting finance approved is to demonstrate to the bank that you can repay the loan, no matter how well the business does. You should be ready to show the bank a great credit score. You should also have a spotless history of on-time payments and be prepared to put down a significant deposit plus potentially putting up a property as security for the loan.
Contact jbb. to Discuss Your Financing Options
Are you ready to finance your business purchase? If so, enlisting one of our experienced business brokers is a great start. Contact us today on 0409 965 540 or email email@example.com to find out more.