Are you interested in expanding your business and buying another one? A business loan can help you with this. Here’s what you need to know before starting the process.

There are many ways to become an entrepreneur. While coming up with a brilliant idea and building a business around it is a popular choice, it’s just one option.

Another buys an existing company.

Maybe your business doesn’t have enough juice to grow at the rate you want and you want to fix that. You can buy a company that already has the inventory, market share, or infrastructure to help you achieve your goal. Or maybe you don’t want to get an idea and prefer to jump straight to the business owner and buy something that’s already up and running.

If you do not have the financial resources to do so, financing the acquisition of a company can be helpful.

Here’s what you need to know about these loans and the process of getting one.

Overview: What is a business purchase loan?

A business acquisition loan is a loan that allows you to acquire another business. Easy right?

This type of loan is used by business owners who want to buy an additional business or franchise. If your current company is a partnership and you want to buy it, i.e. if you are the sole owner, you can also use a purchase loan for this.

There are a few different types of credit to explore depending on your situation and needs:

• SBA loan: For many small business owners, especially those who are often unable to secure traditional financing, SBA (Small Business Administration) loans can be a good option. The SBA works with lenders across the country to provide financing. Explore the 7(a) and 504 loan programs; both are SBA business acquisition loans.
• Term Loans: If you have good credit and financial standing, you could be a candidate for a term loan. These are usually originated through traditional lenders (although many online lenders now offer purchase and business installment loans) and have more attractive payment terms and fixed interest rates.
• Equipment Financing: If your business owns a lot of valuable equipment, you may be able to use it as collateral for a loan. In some cases, using this method will help speed up the credit process. However, if you default, the rental company will own your equipment and take it away.
• Peer-to-Peer Lending: Another option is peer-to-peer lending (P2P). Here, financing is not provided by financial institutions, but by groups of people. If you’re struggling to qualify for traditional financing, this could be an option.

3 Benefits of a Business Acquisition Loan

Every type of business loan has its benefits, and purchase loans are no different. For the right person, these loans can help make their dream of owning their own business a reality.

Here are some of the benefits to consider as you continue to look into business acquisition loans.

Skip the startup phase

Ask any business owner and many will tell you that the startup phase is one of the most stressful times of their lives. A lot of blood, sweat and tears flow to get a company off the ground. Aspiring entrepreneurs who don’t have the time or ideas to start something from scratch can jump straight into an established business and focus on growth.

Expand faster

You may know that expanding your business is the best step for growth. However, it may take longer than you would like to raise the funds needed to take the next step on your own. With a business acquisition loan, you can move to the next phase in months, not years.

Get more time

Many of these loans have extended repayment terms set by installment plans. This means you can secure the financing you need for your plans, but you have longer horizons (10 years or more in many cases) to repay the loan. That can help take some of the pressure off, as you can focus on growing without a significant payment hanging over your head.

How to get a business purchase loan

It shouldn’t come as a big surprise, but taking out a business purchase loan is a bit of a lengthy and complicated process compared to other types of financing.

The main reason for this is that lenders need to evaluate more than just you; You also need to evaluate the company you want to buy. That makes sense when you think about it, because lenders don’t want to give you financing for a business that’s on shaky ground or has a higher risk of default.

If you or the company does not meet these requirements set by the business acquisition lender, it becomes much more difficult for you to obtain a loan.

With that in mind, here are the basic steps you need to follow as you go through the process.

1. Assess your situation

Before you take out a business loan, you need to take a good look at your finances and the business you are looking to buy. Any lender you work with will generally want a combination of the following information:

• Credit Stories: You must provide your personal credit history and the credit history for the company.
• Your professional experience: Lenders generally do not approve loans to people with little or no business history. Even if this is your first time owning a business, you should demonstrate that you have the relevant experience.
• Financial records: You’ll need a selection of financial information, including income statements, valuations, and bank statements.
• Your business plan: Create a business plan that highlights your business goals and maximizes your chances of getting funding.
• Company reviews: Lenders pay close attention to this number. Get a clear picture of the company’s current valuation and projected growth over the next three to five years.

2. Check the requirements

Depending on the desired type of loan and lender, there are different requirements. SBA loan requirements may be less stringent than those at your local bank or credit union. Depending on the loan, you may have to meet shorter payment deadlines or provide collateral to obtain it.

Just be aware that whatever the requirements may be, you must meet them. There is rarely any leeway with this type of loan.

3. Get your paperwork in order

The paperwork is essential for securing a loan. So make sure you have it set up before you start the application process. Otherwise, you could force a delay by digging up old documents.

Here are some of the documents you can expect from your lender:

• Personal and corporate tax returns
• Personal and business bank statements
• A signed letter of intent
• deal
• Corporate Debt Plan
• business forecasts
• Legal business documents, including contracts, ownership agreements and licenses

4. Choose the loan that suits your needs

Once you’ve followed the steps above, this part will be a breeze. Once you’ve taken a good look at your and the company’s finances, received all your documents, and developed a business plan, you’re ready to start looking for a lender that fits your needs.

It’s never a bad idea to start with your current commercial banker. Since the application process requires you to meet with your lender, an established relationship can be helpful. Additionally, as you explore the SBA route, many banks are approved SBA lenders.

5. Submit your application

Finally, it’s time to submit your application. Once it’s in, it’s just like they say – the waiting is the hardest part. A business acquisition loan will likely take a few weeks to process. It’s not something that has the quick turnaround you might find in small dollar microcredit financing.

Ready to become an entrepreneur?

It could be the perfect time for you, and a business acquisition loan may be able to help. Before you jump in, assess your finances and the business you are interested in and make sure you review all of your options.