When you set out to finance a business, this entails both the purchase price and coverage of the operational expenses. Although there are quite a few ways to do this, most of them reduce to a handful of avenues that can be articulated succinctly. In the following short article, we’ll cover a few of the available methods for financing business acquisition.
Use Personal Cash Reserves
This isn’t necessarily restricted to just your cash savings; you can also employ home equity to finance a business. Even for a small business, however, you are advised that it takes a lot of money to acquire one and run it – as a result, personal cash usually forms only one aspect of business acquisition.
Traditional Bank Loans
Although this is one of the hardest ways to finance a business acquisition, it stands out as one of the few ways to get all the cash you’d need from one place. The reason for the difficulty is the risk aversion of banks: they strongly disfavor lending against prospective ventures and are inclined to help fund existing assets.
The Federal Government – SBA
The SBA is the Small Business Administration; it is the arm of the federal government responsible for guaranteeing business loans for small and medium-sized businesses. To be eligible, you need good credit, about 10% of the business acquisition costs from your savings, and financial information from three years back. The SBA has a list of approved lenders who will then tender you an offer. The interest rates are superior to any other lending avenue since the risk is very low – the government, itself, backs your loan in the event of default.
This business acquisition option is precisely what it says: the prospective seller, herself, can tender you a loan. Generally, the seller is willing to finance up to 60% of the purchase price for you – but this depends on the size of the downpayment you make, and the strength of your financials to start.