Online lenders offer a variety of loan products to small business owners, including term loans, which you can use to buy a business. They typically have less stringent qualification requirements than traditional banks. As a result, you may find it easier to get approved for a business loan with an online lender if you have less-than-stellar credit.
U.S. Small Business Administration (SBA) loans are offered by a variety of SBA-approved lenders. The SBA guarantees these loans in case a borrower defaults, which makes them more attractive for lenders to offer them.
The SBA 7(a) loan is the most common SBA loan and can help cover the costs that come with purchasing an existing business. It can also help you purchase real estate or land, finance equipment, refinance debt and meet working capital needs.
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Because your lender will need to get approval from the SBA to back your loan, the application process and paperwork for an SBA 7(a) loan can be lengthy. However, these loans typically boast better terms than traditional small business loans, and sometimes even come with counseling to ensure your business runs efficiently.
One distinction: if you are a sole proprietor, you will not need to provide a separate personal guarantee for your SBA loan because you execute the note yourself as a borrower (instead of as a business).
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Conventional, SBA, and online lenders typically instruct small business owners to submit financial documents for the existing company, including cash flow, operating expenses, and physical assets. You should work with the current owner to get business valuation details and financial statements.
This head start comes at a cost, however. And if your personal savings don't cover the cost of your purchase, chances are you'll be looking to apply for a business loan. Depending on a range of factors, you may be able to get a loan to buy an existing business, but first you'll have to size up your needs and requirements, prepare the right information and documents, and shop for the right lender.
When you're buying an existing business, lenders want to know about both you and the business you want to buy. That's fair: Up to this point, you and your prospective business have had two entirely independent histories.
As they would with any loan, lenders want to know about your personal credit history. Do you have a history of successfully managing debt Do you handle credit responsibly They'll want information about your income, your current business (if you have one) and any relevant experience that makes you a good candidate for running this new business successfully. Here's a short list of items to prepare:
If you already own a business and are looking to acquire another to expand operations or change your business model, lenders will also want to know about the financial health of your existing company. Check with your lender for a full list of financial information they require, but be prepared to provide the following:
Further, they'll want to make sure your business strategy is sound and that your proposed business purchase has the income potential to allow you to repay your loan. Proving that could require showing:
Before you can apply for a loan, you need to assemble some basic information. Many of the answers you need will require input from the seller. Although this may seem cumbersome, it's also an opportunity to get some cold, hard facts about the business you're hoping to buy.
Business loans are available from a variety of sources. Your current bank or credit union (or the one your prospective business uses) is an obvious starting point, but you can also shop around for small business lenders. Online lending platforms like Fundera connect small business borrowers with multiple lending sources for a range of business loans including Small Business Administration (SBA) loans, business lines of credit and term loans. According to Fundera's website, borrowers with at least $150,000 in annual revenues, one or more years in business and credit scores of 600 and above have been successful in securing loans.
For many small business owners, SBA loans work where other lending options do not. The SBA doesn't make loans to small businesses; instead, it guarantees loans from lenders like banks and credit unions, which takes some of the risk out of lending. As a result, SBA loans typically have favorable interest rates, but also have specific criteria borrowers must meet to qualify. Look over the SBA's 7(a) Loan Application Checklist to learn more.
Some alternative lenders also offer small business financing and may offer business loans to entrepreneurs who have at least $50,000 in sales, have been in business for 12 months or more, have no bankruptcies or tax liens and own at least 20% of their business.Additional Ways to Finance Buying a BusinessGetting a loan to fund a business purchase isn't your only option. If you can't find a willing lender or your approved loan amount doesn't cover the cost of the business, consider these alternative funding ideas:
Borrow from friends and family. This is not an option to be taken lightly: The emotional cost of defaulting on your loved ones is astronomical. But if you're confident in your ability to repay and are willing to write up an ironclad loan agreement, this can be a viable funding source.
Use your personal funds. In addition to your regular savings, you can consider using investments and other sources of cash to help pay for your new business. Just be wary of tax consequences and the risk of depleting your emergency fund or nest egg: Even the best business opportunity represents some risk. You can also take your reserves of personal credit into account, although financing large sums of money at high credit card interest rates isn't an ideal way to fund your business as it can easily cause your credit utilization to shoot up, which could have big credit implications.
Lenders review a variety of criteria when evaluating your application for a business acquisition loan. The importance placed on each factor may vary depending on the type of loan you apply for. For instance, a term loan, such as an SBA business acquisition loan, will typically require a down payment minimum. A line of credit application may place more emphasis on your revenue and cash flow.
Business acquisition loan amounts range from $250,000 all the way up to $5,000,000. The amount you qualify for depends on a number of factors, including your credit score, company revenue, and existing debt. Every lender will review these factors to make sure your company can safely handle your new loan payments.
California loans made pursuant to the California Financing Law, Division 9 (commencing with Section 22000) of the Finance Code. All such loans made through Lendio Partners, LLC, a wholly-owned subsidiary of Lendio, Inc. and a licensed finance lender/broker, California Financing Law License No. 60DBO-44694.
Business acquisition loans can include multiple types of financing, including the 7(a) loan from the Small Business Administration, term loans, startup loans and equipment financing. They are essentially small business loans that can be used to establish a new business, assist in the operation, acquisition or expansion of an existing business, or purchase a franchise or business. But while there are a lot of advantages to business acquisition loans, they may not be right for everyone.
Business acquisition loans can be a direct method of buying into a franchise or the buyout of an existing business. These kinds of loans can be used to finance the purchase of equipment, obtain and set up an office space or buy out existing owners, among other functions, and they can provide working capital while you get things up and running.
Like any loan, there can be some drawbacks to using a business acquisition loan to purchase a new-to-you business. Financing to purchase an existing business is a complicated decision, so carefully weigh these cons of business acquisition loans.
SBA business acquisition loans are the industry standard, and they certify and work with multiple lenders. Terms range up to 25 years for the 7(a) loan, and you can borrow up to $5 million if you qualify.
There are also prepayment fees to factor in if you want to pay your loan balance down as quickly as possible so you can reduce your debt. If you pay your 7(a) loan down too quickly, you could get hit with prepayment fees even if you save on the interest. 59ce067264