How Hard Is It to Get a Business Loan to Buy an Existing Business?

Business loan to buy an existing business

Starting a business from scratch is a tedious and stressful exercise that requires substantial amounts of capital and lots of patience.

Acquiring one instead is feasibly viable, and the best thing to do. This is why most entrepreneurs will opt to buy an existing business rather than start one.

This article will compile some of the benefits of purchasing a business enterprise; investigate how hard it is to secure financing for business acquisition and the financing options you may have, including how to apply for this financing.

Benefits of acquiring a business

The business acquisition involves purchasing a company’s shares either partly or wholly and its assets in a bid to take control. It is changing business ownership.

The following are benefits of business acquisition:

Enhancing market share

Taking over a business does not only encompass the assets and shares, but it involves the market share too. Therefore, by acquiring a company’s assets, you are also enhancing your market in the industry.

No barriers to entry into the industry

The company that is already in existence has an established client base, a reputation, and a brand. Needless to say, that you will just be taking over. And, will not involve yourself with challenges that affect starters.

Access to funding

It is rather easy to be financed by buying a business than to start one from scratch. Therefore, rather than investing personal cash in the project, you will have unlimited access to a pool of money from financiers.

Generally, the acquisition of another business is beneficial to companies. Because it accelerates the growth of a company, most firms will vote to buy another company of similar dealing if they want to grow and expand their base.

By so doing, they have access to markets, the brand image in the market, and a large capital base. On the other hand, it can bring friction between staff and even duplicate roles. Also, it is challenging to adopt a different culture for some employees if they were used to another. This will likely bring clashes.

Therefore, to answer the questions about how hard it is to get a business acquisition loan, it’s pretty easy. There are many lenders, such as Fortune Credit, who are ready to finance the takeover. The process is straightforward, since it is less risky and more profitable if the takeover is successfully executed.

Business loans to buy an existing business

Financing the purchase of an existing venture/business is quite different from a new business. The current business already has a working track record with financial books and recorded profits.

However, getting loans to finance the buying of a new business may require you to have partners. The financial history of the company plays a huge role during its acquisition.

Getting a business loan may be a bit cumbersome for all individuals involved. The bank must, first of all, look at all the assets owned by the business you want to purchase and also go through the businesses’ financial records.

This is to determine the actual value for the company and to see the appropriate loan to be offered. On the other hand, this process may take a long time for the bank to finish and give out its report.

Most businesses acquire debt during their years of operation; this is not uncommon for many businesses. When purchasing an existing business, the bank, before offering the loan, must look at the debts acquired by the business.

Once the debts have been established, you and the partners must assume the debts at the approval of the debtors, of course. Assuming these debts might also come at a high cost, adding up to the total cost of the business.

Upon finishing with the business, the bank must also look into its partners (the ones purchasing the existing business). It will look into all the people’s credit scores and even the bank statements.

This will require full disclosure of all the previous financial statements. Equally, this will take some time depending on the number of partners the new business will have.

Loan requirements

Personal credit score – used to determine the creditworthiness of the buyers of the existing business.

Business credit score – the buyers, might be already business owners, also applied to the business being sold.

Tax returns – this produces an excellent history of tax remittances to the government. To be advanced with a business loan, one needs to be tax-compliant – both personal tax returns and also business tax returns.

Cash flow statement – this is to determine the running of the daily business transactions. This is only for the business to be acquired.

Outstanding debts – these need to be very minimal since all businesses have obligations. The debts found should be manageable compared to the asset value of the business.

Balance sheet – this determines the financial value of the business being acquired, very important to decide on the amount of the loan to be given to the potential buyers.

Profit margin – the bank has to look at the history of the businesses’ profit margin over a long period. This enables the bank to estimate the future profits of the business and also the installments to be paid back by the business after the loan is issued.

The bottom line

As earlier stated, it may not be challenging to get a willing lender for a loan to help in the business takeover. However, the process of loan application remains similar.

This is where your assets are scrutinized, your application papers, bank statements, financial projections, business plan, and the creditworthiness of both you and the business.

You have options to look for hard money lenders, online lenders, or settle for traditional lenders such as banks. With online applications, you won’t need to do too much paperwork.

Also, you may not need to present collateral, and it is fast. Contrarily, banks will offer you lower rates of interest, but after going through tons of paperwork that you are required to present.

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