So you’re looking to purchase a business, either as a first-time venture into entrepreneurship, or to expand your existing company by acquiring new assets. The only problem is, you’re short on the capital needed to take on such a venture. Darn.
Naturally, you might think of going to a bank or credit union for a loan (after all, that’s supposed to the place with all the money, right?). Or, perhaps you’ve done a little research and know you’ll get a better deal if you go through the Small Business Administration (SBA) to get a loan. While loans from a bank or SBA are still a viable source of financing, there are other sources available. Have you considered all your options?
If you’re currently trying to buy a business, here are some viable ways to get a business acquisition loan, depending on your particular situation.
1. Startup Loan
If you want to buy a business (and don’t already have an existing business), you might be able to get a startup loan.Â To receive a startup loan, you will be required to prove that you have the experience and resources available to run a business. Startup lenders might also require you to prove you’re serious about the venture by making a down payment on the business you’re acquiring.
Startup loans are offered by banks, the SBA, and other independent lenders.Â If you are purchasing a franchise business, you have certain startup loan options available to you as well, as someÂ online lenders offerÂ loans to purchase a franchise.
2. SBA Loan
SBA loans are bank loans that are backed by the U.S. Small Business Association in amounts of up to 85%. Because there is less risk for the bank in the event that you default, the bank can offer you a lower interest rate and longer repayment terms than they otherwise would. If you need a loan to acquire a business, an SBA loan is one of the highest-quality loans you can get. However, SBA loans can have lengthy application processes and it can take a while to get accepted and for the funds to reach your account.
That said, it is still possible to get a business acquisition loan through the SBA, even if you don’t have an existing business (particularly if you’re purchasing a registered franchise). You can consult theÂ SBA’s lender match service to find eligible lenders for your business purchase, as well as the other informational resources the SBA has on their website.
3. Bank Loan
As mentioned, banks do offer loans for business acquisitions, but the requirements are more strict than those of online lenders. The bank will scrutinize your credentials, the finances of the business you want to acquire, and other information related to your proposed business purchase. However, bank loans have terrific rates and if you have the right credentials it’s not impossible to get a bank loan — even if you don’t have an existing business. It will help to have relevant experience in the type of business you’re buying, partnered with steady personal income and good credit.
Check out The Best Banks for Small Business Loans if you’re thinking about applying for a bank loan. Also bear in mind that, depending on how established your business is, a local community bank or credit union may be more likely to approve you than would a large, nationwide banking institution.
Note that while most banks still require a traditional, in-person application, a few banks (like Wells Fargo) offer some alternative lender conveniences, such as an online loan application.
4. Equipment Financing
Depending on what type of business you’re purchasing, equipment and machinery could be among the largest expenses involved in your sale. If equipment is one of your new business’s major assets, equipment financing might help you afford the sale. While not a traditional loan, equipment financing lets you borrow against the value of the equipment, meaning there is no additional collateral required. Besides not requiring you to put up any collateral (other than the equipment itself), equipment financing contracts usually do not require a credit check.
Of course, while equipment financing alone won’t allow you to purchase an entire business, it might help you better afford a business acquisition. Check out our equipment financing comparison chart to see how the top options stack up.
5. Business Expansion Loan
It is without question easier to get a loan to buy a business if you already have an existing business and want to acquire another business of a similar scope. If you already own a stable, profitable business, it’s definitely worth looking into a bank loan for the purpose of expanding your business with an acquisition.
However, even qualified business owners may not want to go through the arduous process of applying for a bank loan and might turn to an alternative/online lender that offers business acquisition loans.Â Some online lenders offer business expansion/acquisition loans with rates and terms similar to what a bank might offer, but with a much easier application process and quicker time to funding. Most of these lenders do still require two years in business, though some only require one.
For more information on small business lenders from whom you might be able to get a business acquisition loan to expand your existing business, look at our small business loans comparison chart.
6. Crowdfunding & P2P Loans
Crowdfunding or P2P loans can be another option if you’re looking for business acquisition money, though crowdfunding by itself likely won’t pull in sufficient funds to cover the entire business purchase. There are various types of crowdfunding for businesses, includingÂ equity-based crowdfundingÂ and rewards-based crowdfunding. EvenÂ charitable giving sites can sometimes be used for business.
Crowdfunding could be an option for you if 1) your business purchase will enable you to produce an innovative product with which you can reward your backers, or 2) the purchase will increase your business’s net worth, which you can share with your backers in the form of equity.
Similarly, peer-to-peer business lending allows business owners to borrow directly from interested investors in an online marketplace, or even from peers in their personal networks. A third-partyÂ provides an online platform that packages the loans and may charge a fee for their services. Because multiple parties typically fund P2P loans, the concept is similar to crowdfunding.
With both crowdfunding and P2P lending, having an innovative, community-minded business plan and a strong online presence will help convince would-be investors to fund your business purchase. And generally, it helps to have some business experience/time in business for lenders/backers to be willing to take a chance on you.
Buying a business can be an exciting and rewarding venture, but getting a loan to finance this purchase is tricky if you don’t already have an established business. Fortunately, alternative lenders have made it easier for aspiring entrepreneurs to secure non-standard business loans, SBA loans, and other types of financing.
If you’re not sure which type of loan option is best for your business purchase, you might benefit from using a loan matchmaking service like Lendio (see our review),Â which will help connect you with the right lender for your situation. This is easier than applying to a bunch of different places, especially if you’re short on time or new to business lending. You can also feel free to ask me some questions in the comments!
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