There are several different methods of financing business acquisitions. The best choice depends on your financial situation, your goals for your business, and the kind of business you are buying. In general, it is important to evaluate loan terms and requirements including minimum credit score along with annual revenue and repayment periods for each lender. Regardless of which method you choose to go with, it is important to work with an experienced financial advisor to ensure that the arrangement you choose to finance is compatible with your acquisition strategy and capabilities.
Traditional loans are generally the most well-known method of financing a purchase for a business. Commercial banks and the Small Business Administration are both choices. These loans require a solid business plan and strong credit history, and they aren’t easy to get for companies which have been in operation for less than two years.
Private lenders can provide alternatives to bank financing for business purchases, particularly for those who require a greater down payment or have unique business conditions. These lenders are focused less on the assets of a company and more on its cash flow.
Another popular method of financing an acquisition is through seller financing. This is typically limited to a few percentages of the total purchase cost and can be used to pay the initial costs or part of the owner’s salary. Seller financing is typically negotiated by buyers as a way to encourage them to close the deal, and also reduce their reliance on banks after the sale.