With an established customer base, knowledgeable staff, and stable cash flow, buying a business comes with a lot of perks. While these benefits can make buying a business a very exciting time, those who understand how to buy an existing business know that it can be hectic and stressful too. This is especially true when it comes to securing the funding you need.
Unfortunately, many would-be entrepreneurs don’t know how to get funding to buy an existing business, and this prevents them from achieving their goal. Thankfully, there are a variety of options. Here, we’ll be going over these different funding sources and what you can do to improve your chances of getting the business acquisition funding you need from a lender.
How to Get Funding to Buy An Existing Business
Wondering how to get funding to buy an existing business? Here are your options:
• Personal funds: Getting the most obvious option out of the way first, if you’ve saved up a lot of money, you may want to dig into your savings and use that to purchase a business.
• Seller financing: Many times, the person selling their business will offer to loan you the money you need to buy the business. Like any other loan, you’ll have to pay it back over time, but it should be achievable based on the cash flow of a business that you now manage.
• Bank loan: Banks loans can be hard to obtain for business acquisitions. In most cases, you’ll need a great credit score and solid borrowing track record, and the business itself will need solid cash flow and substantial assets.
• SBA loan: If you’re wondering how to get funding to buy an existing business, an SBA loan is one of the best options. The SBA 7a loan specifically will be one of your best shots at securing the funding you need. But beware, guidelines are strict, interest rates are currently rising and SBA loans are becoming more difficult to get.
• Leveraged buyout: A leveraged buyout involves leveraging some of the business’s existing assets to help finance the acquisition. It is often combined with loans and seller financing in order to completely fund the purchase of a business.
• Assumption of debt: With this option, you will essentially be purchasing both the business’s assets and liabilities, meaning you may assume existing debt. When it comes to how to get funding to buy an existing business, this is the only option where you’ll need the approval of debtors.
• Unsecured loans: These are loans based primarily on your personal creditworthiness and income, not the business financials. They offer a lot of flexibility, as long as you have stellar credit and current employment.
How to Get Your Finances in Order for Lenders
If you want to know how to buy an existing business, you also need to know how to successfully secure a loan from a lender. To increase your chances of getting a loan, you’ll need to prep the right information and get your finances in order. Potential lenders will often look at the following:
• Personal finances: Personal credit score, tax returns, financial statement, and outstanding debts. If you already own a business, they will also look at the business credit score as well.
• Finances of the business you want to buy: Balance sheet, business tax returns, and profit margins.
Now that you know how to get funding to buy an existing business, let’s get you the money you need in the option that’s best for you. Jumpstart Finance is committed to helping you start, buy, and grow your small business. Learn more about the benefits of unsecured business funding here, and apply here now to see what you can qualify for!