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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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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.
Funding Circle provides low-rate loans via a fast and simple process that doesn’t include application fees or prepayment penalties.
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| Loan Amount: | $25,000 – $500,000 |
| APR Range: | 4.99% – 26.99%% |
| Time To Fund: | 10 days on average |
| Loan Terms: | One to five years |
| How To Qualify: | 660+ Personal Credit Score No Minimum Annual Revenue |
| Great Option For: | Established Businesses, Not Sole Proprietors |
| Click “Check Rates” to apply to Funding Circle Apply Now | |
» MORE: Funding Circle Business Loans Review
QuarterSpot is an online lender that offers fully amortizing short-term loans that allow borrowers to repay their loans early without facing any penalties.
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| Loan Amounts | $5,000 to $250,000 |
| APR Range | 30.00% to 70.00% |
| Repayment Terms | Up to 18 months |
| Time to Funding | As fast as 1 day |
| Click “Check Rates” to apply to QuarterSpot Check Rates | |
» MORE: QuarterSpot Business Loan Review
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.
SmartBiz is an approved SBA lender that countless entrepreneurs and business owners have trusted for funding.
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| Loan Amount: | $30,000 – $350,000 |
| APR Range: | 9.7% – 11.04% |
| Time To Fund: | Typically take several weeks to fund, but can fund as quickly as within seven days. |
| Loan Term: | Maximum loan term is 10 years. |
| Origination Fee: | 4.00% |
| How To Qualify: | 675+ Personal credit score $50,000+ Annual revenue |
| Great Option For: | Borrowers with good credit SBA loans Funding real estate purchases Refinancing debt |
| Credit Check? | Soft credit check and hard pull |
| Co-Applicants Accepted? | No cosigners |
| Direct Pay-Off To Creditors? | No |
| Click “Check Rates” to apply to SmartBiz Apply Now | |
» MORE: SmartBiz SBA Loan Review
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Take advantage of a business acquisition opportunity. . . check financing offers in minutes!
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