Financing Your Business - bizbrokersusa.com

FINANCING YOUR BUSINESS ACQUISITION:

Many people choose to purchase an existing business rather than start on from scratch. Here are a few financing options available to you.

There are many benefits to purchasing an existing business.

a). You already have a cash flow.

b). Employees that are knowledgeable about the business.

c). You have an established customer base.

d). Your supplier base is established.

e). The business name is known.

Each of these items will assist you to obtain a business loan to make a purchase. We must caution you that in many cases it is no easy task. Before you try to secure loans or funding, you may want to do some research. Here are some things you will want to know about financing your business acquisition.

WAYS TO FINANCE BUYING AN EXISTING BUSINESS.

Financing the purchase of an existing business is different from financing a new business. Because an existing business already has a proven track record, it’s often easier to obtain financing rather than an unproven start-up.

Here are a few different methods to finance your purchase. Keep in mind that some of these items are used in addition to others.

a). Personal funds: Using your savings is the first method. We consider this the most important because it exhibits to the seller and a potential lender your investment into the business. After all, if you are not willing to invest in the business, why would a lender want to? This arrangement might require additional support, like that of a bank or SBA loan.

b). Seller financing: Very often a seller will assist you by granting you a loan. Typically, you can pay back over time using the profits you make off the business. This helps ease the transaction without draining your bank account.

c). Bank Loan: Traditional bank loans can be hard to attain especially for a business acquisition. Unless the existing company has substantial assets, and you have a great credit score and track record, you likely won’t score this financing on your own. Many times, depending on the current economy, a bank will offer secured and unsecured lines of credit. If you are considering purchasing a business, you may want to obtain this type of advance for your financing needs.

d). SBA Loan: This is your best avenue at getting a bank loan. An SBA 7A loan provides guarantees and safety measures for banks who, in turn, can lend money to fund the purchase of your business. The guidelines are minimal, however, banks can and do add their own additional conditions into the loan.

e). Leveraged buyout: Ultimately, this involves leveraging some of the business’s assets to help fund the acquisition. This is rarely the only form of funding, however, and often involves loans or seller financing in addition.

f). Assumption of Debt: With this financing option, you essentially purchase both the business’s assets and liabilities. In other words, you might assume existing debt. To do so, you often often need the approval of debtors. Keep in mind, the debtors often ask for additional security for this type of financing.

To determine which method is right for you, you’ll want to consider how much you’re willing to both invest and risk, and what makes most sense for you and your acquired business. If the company has a decent track record and you have an impressive credit history, for instance, you might apply for a bank or SBA loan. On the other hand, someone lacking in those areas might find seller financing as a more realistic path. Regardless, you can always consider alternative options if your original one falls through.

You’ll also want to prepare for any additional expenses, like closing and operational costs. Do some research an discuss your options with professionals before committing to a specific funding source.

Business owners often struggle to secure loans for business acquisitions because much of the company’s financial history is out of their hands.

WHAT LENDERS CONSIDER.

If you choose to take the lender route, which many do, you’ll want to be prepared with the right information to sell your case to the bank. Many lenders will want to see and examine the following:

a). Personal credit score.

b). Business credit score. (If you already own a business).

c). 3 years worth of tax returns.

d). Cash flow statement.

e). Outstanding debts – short and long term.

FINANCES OF ACQUIRED BUSINESS:

a). Balance Sheet ( From the company financial statements and compared to income tax returns).

b). Business tax returns.

c). Profit margins.

Keep in mind, any red flags from before the acquisition can prevent them from attaining a loan. That, coupled with any personal finance issues, makes it especially difficult to receive the proper funding. However, it is certainly not impossible and it helps to provide a decent down payment. In fact, there are traditional lenders who prefer to finance small business owners who are purchasing an existing business – provided they are willing to put down somewhere between 20 to 50% down on the purchase. Also, many banks will require some form of additional security such as real property.

APPLYING FOR A BUSINESS LOAN

You don’t want to approach the application process empty-handed. Before applying for a business loan, we recommend preparing documents and details that prove you can be trusted. This includes:

a). Business valuation.

b). Related experience.

c). Business Plan.

d). Future projections.

e). Value add.