Types of Business Acquisition Loans
There are a number of different types of business acquisition financing which may be suitable, depending on requirements and circumstances, including the ones listed here.
Traditional Term Loans
The traditional term loan is one in which a business borrows the funds needed from a bank or other financial institution and repays them monthly over an agreed period of time, generally at an agreed interest rate. This type of loan offers the flexibility of arranging relatively long payment terms.
SBA 7(a) Loans
These are bank-issued loans which have been specifically introduced to help small businesses to grow and which have the advantage of being Government-backed. However, they will require a deposit of between 10% and 30% to secure one and, along with other business acquisition loans, are mainly for companies with a sound financial background.
These are less commonly used for business acquisition because, by their definition, they are intended for businesses that are not yet established. They work in much the same way as the standard term loan and are generally from lenders who are prepared to back businesses with little or no credit history or a track record of success.
In some cases a business acquisition’s purpose is to buy the equipment that comes with the sale. In this case, an equipment financing loan might be a better option. It involves borrowing against the value of the equipment, with the equipment becoming collateral for the loan.
The Tough Side of a Business Acquisition
While small business acquisition seems like a very good idea in principle, there are a number of considerations that need to be taken into account beyond exactly how it’s going to be financed. Bringing any two businesses together is always going to present challenges, for example, it may be that some roles are duplicated which means tough decisions will need to be made. There may also be different cultures and ways of working that need to be brought together – so securing the business acquisition financing may turn out to be one of the easiest elements of the process.
Evaluating the Acquired Business
Before deciding to acquire any business, whatever the size, there are always going to be many stages of due diligence to carry out. This will help to confirm whether or not the business is sound and how beneficial the acquisition will be. There are three key areas that need to be scrutinized.
The first, and most important, is the balance sheet. This will give a fair and objective view of how strong the business is and reveal any hidden debts or other undisclosed financial commitments.
Business Tax Returns
Two to three years of tax returns will also be required to give an overall picture of how the business to be acquired has fared in the recent past. Ideally, these will show a consistent level of income over the years submitted.
Even for businesses with a very impressive annual turnover, it’s the profit margin that is the most significant figure. Naturally, the higher it is the better the prospects are after the acquisition.
Business Acquisition Loans with Bad Credit
Lenders naturally prefer to deal with businesses with a good track record. But this is not to exclude the possibility of getting business acquisition loans with bad credit. It may be necessary to put down more collateral and it will almost certainly mean a higher interest rate. By putting together a sound business case and aiming to acquire the right company, means that getting a loan will not be out of the question.
Acquiring an existing business can be a sound move for many companies; helping them to expand and become more successful far more quickly than simply going for growth. Provided the right acquisition is targeted and a sound case is put together, then getting a business loan should be possible. There are a number of different kinds of small business loans available, so it is simply a case of doing some research and applying for the most appropriate one. The simplest way of applying is generally to take out an online business acquisition loan from one of the many lenders who provide them.