You have a few financing options if you’re not ready to purchase an existing company outright, such as seller financing and business acquisition loans. When purchasing a business, you may combine two or more funding sources, depending on the asking price. It is advisable to conduct thorough research and collaborate with reliable accountants, lawyers, and business brokers as each strategy has advantages and disadvantages.
Thankfully, a well-established company usually has tangible assets, financial statements, and a current clientele. Lending partners will take all of these things into account when granting approval. Here are four ways to purchase an existing company.
How much do you need?
We’ll begin by asking you a quick questionnaire to better understand the particular requirements of your company.
When we find your unique matches, our staff will talk with you about the next steps in the process.
Qualifications for a loan to buy a business
Getting a loan to buy an existing business, also known as a business acquisition loan, is generally easier than getting startup funding because lenders can view the performance record of an existing business. Your individual credit history, experience, and specifics regarding the acquisition company are still important, though.
Your personal credit
Lenders can evaluate how you have handled debt in the past and possibly even predict how you will handle it going forward by looking at your credit report and score.
Good credit: You will have a better chance of getting approved for a loan and the terms will be more favorable if your credit score is higher. For those with poor credit, there are still loan options available.
Good credit history: Lenders check to see whether you’ve paid your bills on time in the past. Charge-offs, bankruptcies, charge-offs, repossessions, and other events where you haven’t made the complete payment will be recorded.
Your business experience
A successful track record of running other businesses can be advantageous to lenders when purchasing a new venture.
Experience in the industry: It’s beneficial if you’ve worked in the same field as the company you wish to buy. Related education can also be viewed as a positive.
Revenue-generating record: Business financial statements can assist a lender in proving that your previous or current ventures were profit-making and well-managed.
Business credit record: Lenders look through your business credit reports and scores to confirm your creditworthiness and to find any late payments, liens, foreclosures, or bankruptcies related to your other businesses.
The business you want to buy
A company’s operation does not guarantee that it is a wise investment. In order to evaluate the operation’s health, lenders will request documentation, which is typically supplied by the current owner.
Value of the company: Just like you, your lender wants to make sure that the company you’re purchasing has a fair price and has value.
Past-due debts: The business’s past-due debts, which could include liens, different kinds of taxes, utility bills, and collection accounts, will be of interest to lenders.
Applying for a loan to buy a business
A few personal documents and those pertaining to the business you wish to buy are usually required, though most lenders will let you know what they need to see in the loan application package.
Personal documents
The documents listed below are utilized to assess your financial situation, business background, and post-purchase plans for the company:
- Personal tax returns.
- Personal bank statements.
- Financial statements for any of your other businesses.
- Letter of intent.
- Business plan.
Business documents
Documents from the current business owner will also be evaluated. Some common ones requested by lenders include:
- Business tax returns.
- Profit and loss (P&L) statements.
- Business balance sheet.
- Proposed bill of sale.
- The asking price for the goods that are being sold, such as furniture, machinery, equipment, and inventory
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Where to get a loan to buy a business
Obtaining capital to purchase an existing company may be simpler than obtaining a loan to launch one. The following three well-liked funding sources are worth looking into for a business loan:
Bank loans
For business loans, banks typically provide the best terms and lowest interest rates. In addition to having a solid credit history, your current business must be operating for a minimum of number of years and bringing in a minimum amount of money annually as determined by the lender in order for you to be eligible for a business bank loan.
You might be able to obtain a personal loan for business purposes in addition to business bank loans. But, to be approved, you’ll probably need a solid credit history in addition to substantial personal assets, just like for business loans.
SBA loans
In the event that borrowers are unable to obtain a conventional bank loan, they may want to consider Small Business Administration (SBA) loans, which are partially guaranteed. These loans may be less difficult to qualify for because the lender is exposed to less risk. In addition to conventional bank loans, SBA loans are regularly provided by banks and credit unions.
Online business loans
Another option to consider is online business loans. When it comes to qualifying, online business loans might be more accommodating than bank and SBA loans. In certain situations, minimum credit score requirements can be as low as 600. Interest rates are typically greater than those offered by a conventional bank loan.
FAQ
How difficult is it to get a business loan to buy a business?
Securing a small business loan isn’t easy for every business. A business is evaluated based on a variety of factors, but in comparison to a new venture with low annual revenue or a bad credit score, one with a high annual revenue and a good credit score may find it easier to get approved.
Can you take out a loan to buy into a business?
The majority of financial institutions and online lenders offer business term loans. Usually, the lender will have requirements regarding your credit score, length of business, and annual revenue.
What type of loan would you get to buy a business?
SBA loans are a particular kind of small business loan that banks and other lenders offer, with a portion of the loan amount guaranteed by the Small Business Administration. Although the SBA offers a number of loan options, the SBA 7(a) loan is the most widely used.
What credit score do you need to buy a business?
That being said, a credit score of 680 or above is generally regarded as good, and it will qualify you for the majority of small business loans. Excellent credit is defined as having a score of 720 or above, which entitles you to the best terms and interest rates.
Read More :
https://www.nerdwallet.com/article/small-business/loan-to-buy-business
https://www.uschamber.com/co/run/business-financing/financing-buying-an-existing-business