Best Unsecured Small Business Acquisition Loans For Good & Bad Credit

In the early stages of most businesses’ growth, a company expands by acquiring new customers. But as time goes on, some businesses begin to acquire competing companies to expand their customer bases. This is known as business acquisition and, oftentimes, these transactions aren’t cheap. Fortunately, entrepreneurs who don’t have enough cash on hand to buy another company outright can use a business acquisition loan to take their company to the next level. If you’re curious about how small business acquisition loans work and how you can go about applying for one, here’s an overview of everything you need to know.

What Is a Business Acquisition Loan?

A business acquisition loan is a type of commercial loan in which the funds are either applied to the purchase of an existing business or the opening of a new location for an existing franchise. Based on the type of business you’re planning on buying — as well as your individual credit history — the amount of financing you’ll receive (and the terms under which you’ll be required to repay the loan) can vary substantially. 

How Do You Finance a Business Acquisition?

There are several different ways to finance a business acquisition. However, depending on the amount of funding you require, one option may be better for you than another. To that end, here’s a quick look at a few popular options and when each one may make the most sense for you.

Is financing a business acquisition a good idea?

It all really depends on the business that you are hoping to acquire. Has it been around for a while? Does it generate an incredible amount of revenue that can help boost your cash flow? Maybe it's a respected brand that you can build on. Whatever the reasons for acquiring an existing business, if you are going to be investing a large amount of time and money into the acquisition, you should really do your research to make sure it is the right move for you and your business. This is especially true if you use a business loan to pay for the acquisition. Those monthly payments will be due no matter if the business you acquire is a success or a failure. Taking a large risk on an existing business takes diligent research, number crunching, and a solid business plan to set you and your company up for future success. 

What are the pros and cons of business acquisition loans?

Business acquisition loans come with a number of advantages and disadvantages just like any other type of business financing. It’s important that you understand all of the risks before making such a large investment and before obtaining a loan to pay for it all. Here are some of the main pros and cons of business acquisition loans. 

• Pros

• • Longer repayment periods with lower monthly payments available: Sometimes acquiring an existing business can take some time before you see a return on your investment. Additionally, in the beginning, there may be a lot of miscellaneous expenses that you need to cover on the fly. You may need to hire new people or obtain new or different equipment, and now you need to cover operating costs at multiple locations. Many business acquisition loans can come with terms of up to 20 years or more, depending on what the loan is being used to buy. For example, the Small Business Administration can offer financing for real estate purchases with terms of up to 25 years. When you are looking at purchasing an existing business, it may be a good idea to use a couple of different types of financing to cover the total cost of acquisition while leaving a little left over to provide the much-needed working capital you will need in the early stages. 

• • Some loans can be funded quickly: If you are looking to acquire an existing business, you may not be the only suitor. Being able to access a large amount of cash quickly may be vital to closing the deal you have always wanted. By using a term loan through an online lender, you may be able to act fast and swoop in on a deal by being able to get funding for the acquisition in as little as 24 hours. 

• Cons

• • Some business acquisition loans have restrictions: Sometimes, the Small Business Administration may have additional stipulations and restrictions when providing a loan to acquire an existing business. For example, the SBA can stipulate that the previous owner is not allowed to maintain any stake in the business once ownership is transferred. Meaning, if you would like to use an SBA loan to purchase an existing business, you may have to purchase all of it or none of it. 

• • additional interest and monthly payments: Taking out a loan to pay for a business acquisition when you have to pay debts for your current business can add a good amount of additional interest to your debt load as well as require an additional monthly payment that can restrict cash flow. 

How often are loans needed for a business acquisition?

Purchasing or expanding an existing business requires an investment of both time and money. To maintain a healthy cash flow while growing a company, business loans can help. It’s very common for businesses to take out loans to fund the acquisition of an existing business. Additionally, even if you did have the liquidity to pay cash for acquiring an existing business, you may not want to use all or most of your working capital to do so. For this, even businesses that are flush with cash may take out business loans to pay for an acquisition. 

There are four common times of loans used for a business acquisition. There are SBA loans, term loans, startup loans, and equipment financing. Typically, equipment financing may be used in conjunction with another type of loan as well. Here are some more details of the four most common ways business owners borrow money to fund a business acquisition. 

1. SBA loans

   One of the most common ways that business owners borrow money to fund a business acquisition is through an SBA loan. The Small Business Administration works directly with lenders to provide loans to business owners who are looking for business financing for larger amounts, longer repayment periods, and lower interest rates. Because up to a certain percentage of every SBA loan is backed by the US government, SBA-approved lenders are able to provide these types of large loans with long repayment periods and with capped interest rates. Additionally, SBA 7(a) loans can be for up to $5,000,000 spread out over 20 years. For a business owner looking to acquire or expand an existing business, having access to up to $5,000,000 with lower interest rates and a 20-year term can be extremely helpful when shopping for businesses to take over.

2. Term loans

   Term loans are a type of conventional business loan that can be obtained through a bank, credit union, or online lender. They work the same way as SBA loans, however, they are much easier to qualify for as they are not backed by the Small Business Administration. The main downside of term loans is often they can come with a higher interest rate than an SBA loan. That being said, if you have good credit, a strong revenue stream, and some demonstrated business experience, term loans can be applied for, approved, and funded all within a few business days. Compared to SBA loans that can take up to 2 months or longer before you see the funding, if you are in the middle of a time-sensitive acquisition, then a term loan may be the better option, even if you end up paying more in interest. Also, you could always refinance your term loan with an SBA loan at a later date once you have acquired the business you intend to take over. 

3. Startup loans

   Startup loans are typically SBA or term loans that are obtained to purchase a franchise or a small business that is still in the early phases of development. Startup loans can be risky for lenders. That is why many startup loans may require that commercial assets be used to secure the loan and/or provide a personal guarantee for the loan. A personal guarantee requires any person who has a 20% or more ownership stake in the business to sign a document that can allow a lender to come after their personal assets if the business defaults on the loan. Aside from securing the loan, lenders may also require a larger down payment, higher interest rates, and shorter terms for startup loans. 

4. Equipment financing

   Equipment financing is a powerful form of business financing that can be used to expand an existing business by being able to finance all of the necessary equipment and machinery that is needed to run the business. The equipment that is purchased with the equipment financing almost always is used as collateral to secure the loan. The good news is that you may not have to use any of your other commercial or personal assets to secure the financing. The bad news is that if you should default, all of the equipment and machinery purchased becomes the property of the lender. 

Aside from these four main sources of funding used to acquire an existing business, some business owners may look into equity financing options by inviting an angel investor or venture capitalist to fund the expansion or acquisition of an existing business. Ready to compare acquisition financing offers? Click here.

Short-Term Business Loans

Short-term business loans are extremely common among business owners. This is because numerous lenders offer quick and easy access to amounts ranging from $2,500 to $250,000. Generally, these loans must be paid back within three years, but some lenders require repayment within as little as three months. When it comes to acquisitions, though, these loans often don’t offer enough funding to purchase a business unless that company is at a relatively early stage in its growth or has earnings that are rather modest.

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Long-Term Business Loans

For business owners who need access to a large sum of funds — but who aren’t necessarily in a rush to repay it — long-term loans offer an ideal solution. Compared to their short-term counterparts, long-term loans are more commonly used for business acquisition purposes because they offer limits up to $500,000 and the freedom to repay the borrowed sum over the course of a decade. Although long-term loans generally offer enough funding to purchase many small businesses, these loans can also come with high-interest rates, which can dissuade many potential borrowers from accessing this funding.  

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SBA 7(a) Loans

The Small Business Administration (SBA) offers a variety of loans for businesses of all sizes, but the organization doesn’t issue these loans itself. Rather, the SBA connects business owners with its network of approved lenders. Among the loans offered by these approved institutions, the most popular type is known as SBA 7(a). SBA 7(a) loans make it easier for small businesses to get approved for loans by reducing the risk for lenders. Moreover, SBA business acquisition loans can be issued in amounts up to $5 million, which is substantial enough to purchase many small businesses. The process of applying for SBA 7(a) loans, however, is more involved than short- and long-term loans and the requirements are more strict, meaning that fewer business owners will win approval.

Learn More About SBA Loans

Best Unsecured Loans For Business Purchase

If you’re looking for unsecured business acquisition loans to help your business grow, here’s a look at several popular lenders as well as their respective strengths and weaknesses.

FundingCircle

Funding Circle provides low-rate loans via a fast and simple process that doesn’t include application fees or prepayment penalties.

Pros

• FundingCircle’s online application process is fast and easy.
• The company has a high level of customer satisfaction.
• A loan from FundingCircle can help entrepreneurs build business credit.

Cons

• Loans from FundingCircle require personal guarantees.
• Interest rates on FundingCircle loans are more expensive than those of many banks.

» MORE: Funding Circle Business Loans Review

QuarterSpot

QuarterSpot is an online lender that offers fully amortizing short-term loans that allow borrowers to repay their loans early without facing any penalties.

Pros

• Borrowers who prepay their loans may receive a significant discount.
• A credit score isn’t required to qualify for a loan from QuarterSpot.
• QuarterSpot offers more transparent terms than many other lenders.

Cons

• Loans from QuarterSpot are subject to a moderately high APR.
• QuarterSpot charges more fees than many other lenders.
• The origination fee with QuarterSpot loans is much higher than many competitors.

Upstart

Upstart uses artificial intelligence and machine learning to grant speedy personal loans to business owners who may not have a long history of credit usage.

Pros

• Upstart offers APRs far lower than many other lenders.
• Loans from Upstart are processed in as quickly as one day.
• Unlike many other lenders, UpStart can approve your loan without hurting your credit score.

Cons

• Upstart may charge an origination fee as high as 8%.
• Loan terms are only offered on a 3-year or 5-year basis.

SmartBiz

SmartBiz is an approved SBA lender that countless entrepreneurs and business owners have trusted for funding.

Pros

• SmartBiz offers large loans with low APRs and long repayment terms.
• Applying for an SBA loan through SmartBiz is faster than going through the SBA directly.

Cons

• Qualifying for a loan with SmartBiz is more challenging compared to other lenders. 
• SmartBiz is not a great option for new business owners or applicants with bad credit. 
• The SBA 7(a) application process takes more time than short- or long-term loans. 

» MORE: SmartBiz SBA Loan Review

Prosper

Proper is a pioneer in the peer-to-peer lending industry, bringing individual borrowers and lenders together without requiring a middleman or many of the high fees common with traditional banks.

Pros

• Prosper allows borrowers to avoid fees charged by big banks.
• This lender doesn’t require a “hard pull” of an applicant’s credit report.

Cons

• If a borrower has bad credit, closing fees could be higher.
• Borrowers can’t customize the length of their loans. 
• Prosper charges an origination fee of up to 5%.

What to Consider Before Applying for a Business Acquisition Loan

Prior to applying for funding to acquire a competing company, it’s important to be familiar with common business acquisition loan requirements. Here’s a quick look at a few factors borrowers should consider before submitting a loan application.

Personal Credit Score

Your individual creditworthiness is a make-or-break factor in the eyes of many lenders. If your score doesn’t meet the minimum requirement for some institutions, filling out an application may likely be a waste of time. 

Outstanding Debts

Before approving an aspiring borrower’s application, many lenders also look at how much money the applicant owes to others. If you have a substantial amount of outstanding debt, that could certainly raise some red flags during a lender’s assessment of your application.

Extra Fees and Costs on Loan

Different lenders have different costs when it comes to loans. Some, for instance, charge fees for prepayments and origination, while others ask for a business acquisition loan down payments. Be sure to find out what lenders’ extra fees and costs are prior to taking out any loan. 

Payment and Loan Terms

It perhaps goes without saying that each lender also has its own set of terms regarding repayment. Some lenders charge more interest than others, while some institutions expect weekly or even daily payments rather than monthly ones. Familiarize yourself with these terms before signing on any dotted lines.

Where can I get a business acquisition loan?

You can get a business acquisition loan through a bank, credit union, online lender, or through the Small Business Administration. You may also find an angel investor or venture capitalist to help you pay for the acquisition as well. With so many places to get a business acquisition loan, it can be overwhelming. A good place to start is to determine how much you need to borrow and what type of repayment structure is best. From there you can search for lenders that can meet your basic needs. To explore offers from a variety of lenders, start the search at PrimeRates online. 

Can an SBA loan be used for business acquisition?

Yes, for those who qualify, a loan through the SBA 7(a) loan program can be an excellent way to finance a business acquisition. The SBA 7(a) loan program can offer loans of up to $5,000,000 that can be used to purchase an existing business.

Can I get a business acquisition loan with bad credit?

Business loans and loans in general with bad credit are a possibility, but usually not a good idea. While you can get a business acquisition loan with bad credit it will likely be costly and restrictive. If you have a partner, consider putting the loan in their name if they have good credit. You can also consider backing the loan with collateral such as your personal home. Ultimately though the best option is probably to rebuild your credit before taking out a loan. To find out if you qualify and what the loan might cost, check offers at PrimeRates with no credit impact.

How much money can I borrow to buy a business?

Some of the largest loans to buy a business can be obtained through the Small Business Administration. The SBA offers loans of up to $5,000,000 to purchase an existing business, and if there is commercial real estate involved, the SBA can offer loans of up to $5,500,000. 

What are the alternatives to business acquisition loans?

If you’re not interested in obtaining a business acquisition loan to fund the takeover of an existing business, you may consider alternatives like equity financing. Equity financing may be a good option for many business owners, however, consider that you will be giving up equity in your company, and if you sell enough equity, you could see yourself pushed out from a leadership position in the company you built from the ground up. If you’re a bit confused on your options and which is best, getting some real offers on the table can provide clarity. 

At PrimeRates you can explore a variety of business acquisition loan offers with no credit impact. Within minutes you can access the best offers personalized just for you at PrimeRates. Skip false advertising and hope. Replace it with real offers that are just for you. Simply submit some basic information and access offers from a network of vetted and trusted lenders. With no credit impact, investing a little bit of time in checking offers at PrimeRates can have a healthy ROI. Our lending partners are experts at what they do, therefore, you can avoid red flags or scams by working only with a network of top-rated lenders.

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