Are you trying to get funding for a new business acquisition? A business acquisition loan might be right for you. But what kind of loan should you get?
Check out the four best options right here.
Traditional Term Loans
If predictable monthly payments and a fixed interest rate sound good to you, consider applying for a traditional term loan. This type of loan is easy to understand—as the borrower, you get a fixed amount and pay it back over a set amount of time—which makes your life a whole lot easier. Traditional term loans are one of the most common types of business acquisition loans.
It’s important to be aware, however, that lenders who offer traditional term loans have high standards. You’ll have to prove that your business acquisition meets those standards, so don’t be surprised if you don’t qualify the first time you apply. For this type of loan, planning is a must.
SBA 7(a) Loans
The Small Business Administration helps small businesses get approved for their loans. One way they accomplish this goal is through SBA 7(a) loans. Here’s how it works.
Rather than fund small business acquisition loans directly, the SBA takes on some of the risk of the loan so that lenders are more likely to approve funding.
While the SBA has other programs, the 7(a) loan program is the best option for business owners looking for a business acquisition loan. Small businesses can borrow up to $5 million for things like equipment purchases, real estate purchases, startup costs, and other expenses.
You don’t have to currently own a business to get a business acquisition loan. A startup loan (which is often a specific type of term loan) gives budding entrepreneurs a funding option without the need for an evaluation of a business’s finances. Instead, the lender will evaluate the finances of the individual borrower.
Be forewarned—approval for a startup business acquisition loan is difficult to win. Many lenders also require the borrower to put some of their own money down, usually about 20% of the purchase price. Unless you can afford that amount, you’re better off looking elsewhere for funding
Sometimes, one of the biggest expenses of a business acquisition is the equipment that comes with the business. In such cases, it might be possible to get funding through an equipment loan. If your acquisition includes a lot of expensive equipment—computers, vehicles, or production machinery, for example—that are vital to the business’s success, equipment financing might be right for you.
Confused by your business acquisition loan options?
Not sure what your next move will be to secure your business acquisition? No matter where you are in the process, Casal & Moreno can help you protect yourself and the future of your acquisition. From explaining legal issues and identifying business objectives to building a plan for your business, we will give you the expertise you need to succeed. Contact us today. For more business and legal tips, sign up for our monthly newsletter at the bottom of our home page.