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Buying a business could instantly expand your own company significantly. Whether you are considering taking over a competitor or entering a new market entirely, a business acquisition is a good move. When you purchase another company, there are multiple benefits. An existing customer base, trained employees, and an established way of running operations are a few details that could make this an attractive option.
Financing the purchase could be a challenge with traditional bank loans, but Small Business Administration (SBA) loans may be just what you need. Business Funding Group (BFG) is a loan packaging company with the expertise needed to help you with your expansion. Contact us today to learn how SBA loans can help with business acquisition.
SBA loans are partially backed by the government, which leads to lenders being more willing to give small businesses loans with borrower-friendly terms. The SBA 7(a) loan program is a common choice for small businesses looking to acquire another business. These loans could offer funding up to $5M.
One of the greatest challenges to business owners looking to grow by business acquisition is the need for a large down payment. Thankfully, this is not an issue with SBA loans, which require only 10% of the project cost, making the investment more reasonable for small business owners. This 10% down payment can now be financed by a seller’s note, provided that it is on standby for two years and has no balloon payment.
Interest rates are often lower than traditional loans as well, so the monthly payments are more manageable, and business owners have more of their money to utilize for investing or other business expenses.
Another benefit to using SBA loans for business acquisition is that the loan proceeds could be used somewhat flexibly. The funds could cover the business’s purchase price, of course, as well as other expenses that come with acquiring a company. Some examples of extra expenses include fees, working capital, hiring, and more.
For acquiring a business with the help of an SBA loan, the 10% down payment is calculated based on the total project cost and not the purchase price. So, if a business’s purchase price is $1.5M, but the total project cost adds up to $2M, the down payment would be 10% of $2M.
Understanding this requirement is important for planning ahead to make sure you can afford the purchase.
However, as noted above, business buyers can take advantage of seller financing to cover this down payment, as long as the seller’s note remains on standby for two years with no balloon payment.
Lenders want to see that a small business owner looking for a loan meets certain eligibility requirements. The most important factors that lenders evaluate are:
A business owner should have a personal credit score of at least 700. Their business credit history will be taken into consideration, too.
If you are seeking to purchase another company with an SBA loan, your existing business should be financially stable. Having sufficient cash flow demonstrates to lenders that you are likely to be able to make the monthly payments and pay the loan back in its entirety over the course of the repayment period. Lenders could also factor in details like whether you have experience in the industry you are entering and if you have a well-thought-out business plan.
Acquiring a business is an advantageous move that could help you reach your business goals. SBA loans make it affordable when it might not have been with traditional funding options. The terms and conditions of SBA loans are favorable for small business owners.
BFG could help you identify your eligibility for a loan based on how much you need and your financial situation. Our experience with financing for business acquisitions allows us to offer advice about total project costs, down payments, and more.
We assist business owners with their loan applications from start to finish. We stay with you through the entire process so that it never feels overwhelming or confusing. With a commitment to helping small businesses, we assist you in obtaining the financing you need to grow your company. Contact us to learn more about how SBA loans can help with business acquisition.
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