There are a variety of acquisition financing strategies, and the best one will depend on your financial situation, your business goals, and the type of business you’re acquiring. It is important to compare the terms of the loan, including the minimum credit score and annual income requirements 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 financing arrangement is in line with your acquisition strategy and capabilities.
Traditional loans are generally the most popular method for financing a business purchase. Commercial banks and the Small Business Administration are both alternatives. These loans require a solid business plan and a strong credit history, and they aren’t always easy to obtain for businesses that have been in business for less than two years.
Private lenders can offer alternatives to bank financing for business acquisitions, specifically for those who require a higher down payment or have specific business conditions. Unlike conventional loans, these alternative lenders usually focus more heavily on the business’s cash flow and less on the assets.
Another method of financing an acquisition is by financing from the seller. It is usually restricted to a small percentage of the total purchase price and can be used for a variety of reasons, such as to cover the initial startup costs, or to pay for a percentage of the owner’s salary. Buyers may also make deals with sellers to get financing as a way to get the buyer to close the deal and to reduce their dependence on bank financing following the sale.
